David Harvey, monomaniacs and the rate of profit

David Harvey is a Distinguished Professor at the City University of New York (CUNY), Director of The Center for Place, Culture and Politics (http://pcp.gc.cuny.edu/) and author of numerous books. For over 40 years, he has been one of the world’s most trenchant and critical analysts of capitalist development. And he has developed a global audience for his on-line video lectures on reading Capital, (see http://davidharvey.org/). Harvey won the 2010 Isaac Deutscher prize for the best Marxist book of the year with The Enigma of Capital (http://www.amazon.com/Enigma-Capital-Crises-Capitalism/dp/0199836841).

Professor Harvey has always been critical of the view that Marx’s law of the tendency of the rate of profit to fall plays any significant role as a cause of crises under capitalism. In his award winning book, The enigma of capital, he states that “There is, therefore, no single causal theory of crisis formation as many Marxist economists like to assert. There is, for example, no point in trying to cram all of this fluidity and complexity into some unitary theory of, say, a falling rate of profit”.

What was particularly interesting to me was that, in his paper, Professor Harvey singles me and my work out as an example of those who support Marx’s law of profitability as the cause of crises. He opens his paper with the words “In the midst of crises, Marxists frequently appeal to the theory of the tendency of the rate of profit to fall as an underlying explanation. In a recent presentation, for example, Michael Roberts attributes the current long depression to this tendency”. He continues: “Roberts bolsters his case by attaching an array of graphs and statistical data on falling profit rates as proof of the validity of the law. Whether the data actually support his argument depends on (a) the reliability and appropriateness of the data in relation to the theory and (b) whether there are mechanisms other than the one Roberts describes that can result in falling profits.”

Harvey is very sceptical of my work and that of others: “Before submitting pacifically to the weight of the empirical evidence that has been amassed by Roberts and many other proponents of the falling rate of profit theory, some serious questions have to be asked”. And he proceeds to ask them.

I think that it is significant that such an eminent Marxist economist (or I think he prefers ‘historical-geographical materialist’) should produce a paper that critiques my work. It is also revealing that he reckons there is a need for him to take to task the work of those supporters of Marx’s law as the cause of crises. Clearly, recent work by such as Carchedi, Kliman, Freeman, Moseley, Shaikh, Esteban Maito, Tapia Granados, Peter Jones, Mick Brooks, Sergio Camara and others, is gaining some traction. So much so that, recently, one Marxist economist from the ‘overproduction school’ called me a ‘monomaniac’ in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organisation Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014 — http://links.org.au/node/4156).

Anyway, I approached David Harvey for his paper and suggested that we conduct a debate on the issues involved. Professor Harvey graciously agreed that a debate would be a great idea and that we could conduct this debate in public, on my blog and elsewhere. So I attach Harvey’s paper Harvey on LTRPF but also point out to you that it will eventually appear in its final form as David Harvey, Crisis theory and the falling rate of profit; to be published in 2015 in The Great Meltdown of 2008: Systemic, Conjunctural or Policy-created?, edited by Turan Subasat (Izmir University of Economics) and John Weeks (SOAS, University of London); Publisher: Edward Elgar Publishing Limited.

It is not possible to do justice to Professor Harvey’s critique of the supporters of Marx’s law as the cause of crises. You must read the whole paper. But in essence, Harvey argues that the LTRPF is not the only or even the principal cause of crises. Thus it cannot be the basis of a Marxist theory of crisis. Indeed, as he said above: “There is, I believe, no single causal theory of crisis formation as many Marxists like to assert”. He is sceptical of Marx’s law being relevant and accepts the views of MEGA scholars like Michael Heinrich that Marx also probably became sceptical and dropped it. “I find Heinrich’s account broadly consistent with my own long-standing scepticism about the general relevance of the law” (see my posts on Heinrich, http://gesd.free.fr/mrhtprof.pdf). Indeed, Harvey has doubts that it is a law at all: “we know that Marx’s language increasingly vacillated between calling his finding a law, a law of a tendency or even on occasion just a tendency”.

Harvey argues that we proponents of Marx’s law as the basis of a theory of crises are one-sided and monocausal in our approach because: “proponents of the law typically play down the countervailing tendencies”. Thus we rule out many features of capitalism that may be better causal factors in crises. For example, we ‘monomaniacs’ (to use Mike Treen’s term) “suggest financialization had nothing to do with the crash of 2007-8. This assertion looks ridiculous in the face of the actual course of events. It also lets the bankers and financiers off the hook with respect to their role in creating the crisis.”

Moreover, Professor Harvey pours cold water over our “array of graphs and statistical data on falling rates of profit as proof of the validity of the law”. He doubts their validity because there is plenty of evidence in the ‘business press’ that the rate of profit, or at least the mass of profit, in the US has been rising, not falling. And even if it is correct that there was a post-war fall in the rate of profit, “Profit can fall for any number of reasons”. He cites a fall in demand (the post-Keynesian explanation); a rise in wages (the neo-Ricardian profit squeeze explanation); ‘resource scarcities’ (Ricardian); monopoly power (Monthly Review school view of rent extraction from industrial capital).

Professor Harvey prefers other reasons for capitalist crises than Marx’s law. There is the effect of credit, financialisation and financial markets; the devaluation of fixed constant capital in the form of obsolescence; and, above all, the limits on consumer demand imposed by the holding down of real wages relative to capitalist investment and profits. He wants us to consider alternative theories based on the “secondary circuit of capital” i.e. outside that part of the circuit to do with the production of value and surplus value and instead look at that part concerned with the distribution of that value, in particular ‘speculative overproduction’. Again, he wants us to look at the crises caused by a redistribution of the value created by ‘dispossession’, a form of ‘primitive accumulation’ where wealth is accumulated by force or seizure and not by the exploitation of wage labour in production as in fully developed modern capitalism.

Well, Professor Harvey has provided a new opportunity to debate these points and hopefully for all of us interested in this to gain a better understanding of what causes crises under capitalism so we can resist and overcome the power of capital eventually. I have replied to Professor Harvey’s paper as best as I can with my own, which can be found here reply-to-harvey.

Naturally, I do not agree with Harvey on any of his points. I think that Marx’s law of profitability does provide the cornerstone of the Marxist theory of crisis, which I think is coherent and ascertained from Marx’s works, mainly Grundrisse and Capital. I don’t think Marx’s law is logically incoherent or ‘indeterminate’ or that he dropped it in his later years, as Heinrich suggests. As for being monomaniacal or one-sided, I agree with G Carchedi: “if crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

I don’t think that I or other supporters of Marx’s law as the basis of the cause of crises have ignored the countervailing tendencies to the tendency of the rate or profit to fall as capital accumulates. That’s because the law is both the tendency and countertendency. Henryk Grossman, supposedly the most ‘monomaniacal’ of all supporters of the law as a theory of crises, in his book devoted 68 pages to the tendency and 71 pages to all the countertendencies.

Anybody who has read my book, The Great Recession, knows that I fill large amounts of space to the role of the US housing boom and bust, the banking crisis, exotic and toxic derivatives etc. Indeed, my current blog has at least 25 posts on the relation between profitability, credit (debt), banking and the crisis. And in 2012, the year after DH gave the Isaac Deutscher memorial speech at the Historical Materialism conference, I presented a long paper entitled Debt Matters (Debt matters). The role of credit in crises is important and I and others have spent some time trying to incorporate that into a Marxist theory of crisis.

As for the data, well, I and many others have painstakingly tried to ensure proper empirical analysis and statistical techniques to justify the case that there has been a secular fall in the rate of profit of capital in all the major economies, as well as a cyclical process(or waves) of profitability when countertendencies come into play. If these data are wrong, then I await alternative data from Professor Harvey. I don’t think anecdotal evidence from the business press is sufficient.

My and the work of others have enabled us to get a causal sequence of the development of capitalist crises. As Marx himself argued, there is a point in the accumulation process when the rate of profit on the stock of investment falls to a level where new investment actually leads to a fall in the mass of profit and new value. This ‘absolute overaccumulation’ of capital is the trigger moment for the collapse of investment and then bankruptcies, unemployment and falling incomes – in other words, a slump. A study by Tapia Granados has shown this causal sequence holds for the US economy since 1945 (does_investment_call_the_tune_may_2012__forthcoming_rpe)_and I and G Carchedi have shown it holds for the Great Recession too (The long roots of the present crisis). Profits call the tune. This seems to me a much more compelling case for explaining crises (with even predictive power) than falling back on various theories from bourgeois economics based on credit booms (Austrian school), financial speculation (Minsky), lack of demand (Keynes); low wages and inequality (Stiglitz and the post-Keynesians), as I think Harvey does – see my paper, The causes of the Great Recession (The causes of the Great Recession).

All the alternative theories have one thing in common: that, if their particular theory is right, then capitalism can be corrected through financial regulation (Martin Wolf, James Galbraith), higher wages (post-Keynesians), or progressive taxation (Piketty) without removing the capitalist mode of production itself. That’s because these theories argue that there is no fundamental contradiction in capitalist mode of production that causes recurrent and cyclical crises (as Marx claimed); there are only problems with circulation.

I am ‘monomaniacally’ convinced that the theory of crisis must be found in the production process even if it manifests itself in circulation and realisation. Appearances can be deceiving.

126 Responses to “David Harvey, monomaniacs and the rate of profit”

Michael there is an intermediate position, that the falling rate of profit acts as a long term constraint, but that particular structural crises can be resolved for some decades by measures short of the total replacement of capitalism. In such a perspective there are a hierarchy of linked causes of a crises, and partial resolution of the crises, can be achieved through this. I think that the focus of politics tends to be on the immediate resolution of a crisis and for any crisis there are more or less progressive ways of resolving it. It is a mistake to think that there is no avenue for a reformist politics – appropriately formulated.
Such a response may not be the most radical, but it is an error to think that it is impossible.

I pretty much could be considered as coming from an illiterate perspective. The only marx i really appreciated was the paper on alienation (which could be considered an early one on behavioral economics, just as there are papers from the early 1900’s both predicitng global warming and applying statistical mechanics and thermodynamics to economics). I glanced at his books, but mostly read summaries, which seem pretty simple (you dont need to remember things like ‘8 lumps of coal’). I thought R Goodwin’s stuff (summarized and expanded a bit by P Samuelson pretty much laid down the basic dynamic in a few equations, though stuff like LTV or rate of profit of course were not much discussed) Reading Marx to me is like reading Darwin or Newton to learn evolution and biology—its just not done that way any more. The books mentioned above to me look not worth the time as well. I dont go to church either or read spiritual or holy books because I dont need incesasant sermons, parables, (and mostly wasted tithes) to get the golden rule, etc. I see the book ‘the next recession’ came out 2009— i wonder if roberts predicted the crisis, which would suggest he some useful theory or instead decided to cash in on it by selling something (as Naomi Klein is doing now that she finally got around to watching Gore’s ‘an inconveniant truth’ and has got a computer to translate the film into a book, and then sell it.). I see some other ‘leftist’ type economists are churning out new books as unique as flavors of potato chips, as others defend god or secularism in their new books (which i think are old ideas). But I guess it gives amazon employees and truck drivers and highway builders something to do, and keeps them busy so they dont learn anything except from right wing radio and also dont complain about low pay.

I know someone who teaches elementary school and is doing a dissertation on poetry. I once discussed economics with here briefly—and brought up some ‘radical’ ideas. Her view was ‘but we live in a capitalist system’ so you need to prepare kids for life by taking them to the ‘hunger game’ movies. Besides it makes teaching sortuh easy.

I just wonder why anyone should read this stuff—I’ve seen Kliman, and he just promotes his own view, and i feel its like Marx—its such a mess its nearly incoherent, and he doesn’t deal with critiques. Eventually people do ‘paradigm changes’ (people put Newton’s ‘fluxions’ in a museum and start over but using that as a basis. We seem to have world of cults (often in academia where parents spend tuition or pell grant tax money so kids can learn something to get a job, car, house in the burbs or a gentrifying neighborhood, with the job being on something like analyzing racism and economic inequality, or global warming). My view is one might consider trying to combine Cochshotts planning model (similar to others like Parecon), with Goodwin and say S Keen, and also try to combine calssical economics (utility, commodities, markets, etc.) with the more current statistical economics approach (fairly vaguley discussed by Machover in laws of chaos) and more technically in recent stuff (except these papers do not seem to me to be any more applicable or user friendly than quantum theory was in 1925).

but i guess one can just avoid blogs like this (as JayZ says in ’00 problems’ ‘if you dont like my lyrics u can just fast forward’) and go on to the next street corner preacher until u get a compatible religion or cult.

Save that in the current conjuncture, there are virtually no measures enacted to address even the *proximate* causes of the 2008 crisis. So what may seem theoretically possible is in practice not possible, and we are required once again to look into a theoretical explanation. I think the cause here is not purely one of political paralysis, for this is only to beg the question of *why* the bourgeoisie is so paralysed, and one must search for causes beyond politics. Indeed I think this is not reflective of a paralysis between differing leading fractions of the Triad bourgeoisie, but an near unanimity among them that none of them should have to endure a substantial devaluation of their capitals required (in the absence of significant investment that would raise the productivity of labor) to raise the ROP, and instead push off devaluation onto weaker countries (Greece, Spain Russia etc). OTOH so long as countries such as China provide a relatively low wage productivity alternative to investment in greater productivity in their own countries – hence the Triad’s worry over any sign of decline in China’s rate of expansion – they will stand pat. China is the big shoe yet to fall – once accumulation begins to grind downward there, the game will be up.

Absolutely! I would describe this as part of the “great debate” for the hearts and minds of the working class. These are worn out arguments from Harvey and others of no scientific merit whatsoever who base their criticisms on a complete misunderstanding of Marx’s central argument. The other point being the serial recourse to ad hominem attacks from the other schools e.g. ‘monomaniac’ . For my part I’ve been described as a “dogmatist” and “ultra-left” for agreeing with Marx’s theory as the most robust explanation for the underlying roots of the crisis. One worthy, who is supposed to be a Marxist, has described those who subscribe to Marx’s LTRPF as being like members of a “cult”! Another favourite is to say we suffer from a “fetish”.

You are obviously now in the firing line for daring to challenge the economic explanations of others who primarily base their ideas on bourgeois economics or, as is the case with Harvey and the like, the superficial analysis of the capitalist financial press. Andrew Kliman, for example, has come in for the most outrageous abuse for proposing an alternative explanation based on Marx’s LAW.

The paucity of empirical counter-evidence from the critics would make them laughing stocks in any normal serious scientific debate and all they have left is the equivalent of hand waving, misrepresenting the arguments (there are counter-tendencies duh) and obfuscation.

My question would be who are these people representing? Ideas don’t exist in a vacuum and ultimately, on this question at least, represent class interests.

Looking forward to supporting the only correct interpretation of the reasons for the crisis which looks as if it is about to enter a new, more worrying, phase

A bit harsh Bruce!
I don’t think you can call Harvey’s arguments worn out and him a man of no scientific merit with no real understanding of Marx. Michael Roberts argues his position clearly and cogently, as usual. But still obviously has deep respect for Harvey.
This argument is important, to be sure, but aren’t there other, more urgent, economic arguments to be won? Or perhaps we do need to try to settle this for a better move forward?

In fairness, Mike Treen is not a Marxist economist and doesn’t pretend to be. He is a class fighter of long-standing status, but economic theory has never been one of his strongpoints. In his talk he admits this – indeed, it’s only recently that Mike (who has been active on the left for over 40 years) has accepted that a non-physical product like a service can be a commodity.

Anyway, another excellent piece Michael.

The TRPF stuff was debated out at length in the British Conference of Socialist Economists in the early 1970s, and folks like David Yaffe and Paul Bullock pioneered the re-establishment of TRPF as the cause of systemic crises in capitalism. And before them, Paul Mattick spent decades doing the hard yards on the issue (and before him was Grossman, albeit not in English).

Later, various academics came along who just can’t take being proponents of Marx’s theory; they have to be more important than that and they establish their status by differentiating themselves from Marx. Y’know being “original thinkers”.

Such differentiation and “originality” seems to have a habit of hooking them up with some bourgeois economic theory or some miss-mash that has a dash of Marx and a dash of Keynes.

Although Andrew Kliman can be very spiky – possibly a product of being a classical Marxist in the US university system, a very difficult existence – he has done a lot of good work in countering Harvey’s rejection of Marx’s crisis theory.

Your blog is great. I especially admire your patient pedagogy when dealing with the Marxists who reject Marx.

I wouldn’t consider Kliman to uphold LTRPF. They try to prove a law from circulation cycles and the relation to Okishio problem.
But the LTRPF, being a law means it is a given fact, it is an axiom, or since Marxism is also a social science, that the LTRPF is a law of capitalist society.

The only way to prove, it is to relate it to real world data and see that it fits sociological phenomena and economical data. Anything else is talking about is just not marxian economics, such as trying to give LTRPF a more fundamental reason.

I don’t know where you get the idea that Kliman doesn’t uphold the LTRPF as this is the entire basis of his book The Failure of Capitalist Production. Kliman has refuted the Okishio pseudo-problem along with others. Just a reminder of how he describes his own work.

“The reasons behind the global financial crisis and the Great Recession are the subject of much debate. This is the first book to conclude, on the basis of in-depth analyses of official U.S. data, that Marx’s crisis theory can explain these events.

Marx believed that the rate of profit has a tendency to fall, leading to economic crises and recessions. Many economists, Marxists among them, have dismissed this theory out of hand, but Andrew Kliman’s careful data analysis shows that the rate of profit did indeed decline after the post-World War II boom. He shows that free-market policies have failed to reverse that decline. This fall in profitability led to sluggish investment and economic growth, mounting debt problems, desperate attempts of governments to fight these problems by piling up even more debt –– ultimately ending in the Great Recession.”

He wants to disprove the Okishio theorem by showing that the TLRPF happens under the conditions of the Okishio theorem by assuming that the inputs and outputs are to be taken out of equilibrium far away from equilibrium.. Of course, if you iterate many times, the Okishio theorem is right, but he spends too many words and do not say that there will be a technological innovation before this equilibrium is reached. And nowhere in the theorem is clear that when equilibrium is reached, case the capitalist system will break.

So, the Okishio theorem should not even be discussed at the mathematical level. It should be just be rejected because the capitalist system works with a chaotic system, due the social nature of the system, If anything mathematical is attempted, it should be taken as a consequence of the law and compared to statistical data.

His discussion about single system or dual system is a gross simplification, so, it is not up to rational discussion having the TLRPF as basis. IF the profit rate is taken simultaneously or according to replacement costs, it is not an important matter since it will at most scale up or down parts of the graph according mostly to the inflation. The tendency is secular, so it really doesn’t make much difference, and, anyway, the system is chaotic, there is no place for simplifications. The advanced capital or replacement costs can be arbitrarily set to different values, gold value, dollar value, the value of oil, inflation, depending on the contract. The result will be the same on long term, since this is the nature of the capitalist system.

The exchange value of a commodity is determined by the amount of socially necessary labour required in its production. The less of that there is in every commodity then the less the profit on it. To compensate for falling profit rates the capitalist compensates by increasing its mass by boosting output giving rise to overproduction as there is an insufficient market of people who can afford to buy the product at a price which is profitable to the capitalist. What is true for individual commodities is true for the system. A general rate of profit emerges as capital moves around to find the best rate and this tends to decline as the amount of socially necessary labour time required to produce the totality of commodities declines and the size of the investment needed to make a profit rises. Overproduction becomes generalised and stagnation sets in. Capitral is destroyed and the cycle begins again but on a higher level. But this can only happen if there are new and ever more expansive political economic arrangements for the system to move into. Globalisation behind a single super power is as far as the system can go and that took two bloody world wars and a global depression to get to. A system that cannot change is effectively dead. Capitalism as a system is effectively dead never to arise again. In fact the corpse is positively stinking as the film of globalisation is wound off backwards and the capitalists try to squeeze a quart into a pint pot. The story of globalisation was incredibly violent but the story of its unwinding will make that look like a vicar’s tea party. We are looking at a global regime of barbarism, a New Dark Ages, which if allowed to consolidate may mean the end of our civilisation for ever. The only thing that can transcend capitalist globalisation is world proletarian revolution.

Just thought I would post that to give a bit of urgency to the debate with the opportunists who deny that capitalism is historically contingent and/or that it can be reformed.

If I recall correctly, and it’s been many years since I’ve read Harvey and I have no intention of repeating that disappointing experience, the real “root” of Harvey’s disagreement isn’t the falling rate of profit, but rather his rejection of the labor theory of value.

If I’m right in that, then Harvey’s “unease” with the falling rate of profit is simply a manifestation of his greater unease with Marx’s critique, which is Marx’s analysis of the limits inherent in capital accumulation; an “unease” Marx’s recognition and explanation of the historical necessity, necessity as distinct from “inevitability,” for the overthrow of capitalism; unease with Marx’s assertion of a material determinant for capital, wage-labor, which determinant becomes its negation; Marx’s explanation of the conflict between the means and relations of production as the driving force of revolution; and, when all is said and done (or not), Marx’s identification of a specific class as the agent for that revolution.

Marx doesn’t have a specific single “crisis” theory of capital? But that, developing a single crisis theory is not Marx’s object, or subject, in Capital. The subject, or object, is the reproduction of capital, and the prospects in that reproduction for its overthrow. Marx is “in it” so to speak for the long haul, while crisis is a short-term problem.

Marx’s critique is a “whole,” and the “unease” with the FROP is, ultimately and even originally, unease with historical materialism.

Of course if I’m wrong about Harvey’s rejection of the labor theory of value, then just forget everything I’ve said– until of course some other “theorist” steps up to tell us how incomplete Marx.

“Q: To say that it’s become more complicated, and maybe the production line has become globalised or more complex, is one thing, but then to then say the labour theory of value really doesn’t hold anymore; that’s another jump, isn’t it?

A (Harvey):Yes, and I’m not prepared to do that at the moment. To be honest, I haven’t worked that out to my own satisfaction one way or the other. My instinct is not to abandon the Labour Theory of Value, but to reformulate what that theory of value is about. I had this argument the other night with somebody who said: well, Marx says value is labour time. I said: no, it’s not labour time, its socially necessary labour time, and what capital is about is to define the field of what is socially necessary, and I think we still need to keep with that. Of course, socially necessary in that sense also means there’s a demand for it. The question of what happens when there’s weak demand for something and what happens to the value of theory on the demand side, as well as on the production side, has not been very well understood even in the Marxist tradition. It should have been dealt with a long time ago.”

So, yes, Harvey says, and articulates correctly, Marx’s labor theory of value– socially necessary labor time– but then he seems to be saying and defining it correctly only to back away from it– “there’s demand for it”-, when in fact “demand” or “weak demand” are determined by relations of production. When dairy producers dump millions of gallons of milk into sewers, does that mean there is “weak demand” for milk? Or does it mean that the profitability of the of milk has been undermined by the production of milk as capital?

Anyway, thanks for putting me on the right track. Easier to read interviews than to reread his books.

In the end, I think bruciebaby has the right take on this: Harvey doesn’t really understand Marx’s critique.

And my original comments? Well we’ll just save them for later. Last time I heard Harvey speak, he started advocating “oxidize-able” money or some such nonsense and I had to walk out, after making gagging noises.

I’m presently writing some biblio notes on Harvey for a book project (not concerning theoretical science questions such as this), and can say that Harvey *in practice* drops value theory, IMO. See for ex. the far more condensed “The New Imperialism”, especially the chapter titled “Capital Bondage”. Harvey’s method seeks to straddle the various theories (Keynesian, Monthly Review etc – though revealingly Harvey has almost nothing to say about Baran & Sweezy in TLTC and TNI at least), with Marxist theory. No doubt Harvey sincerely believes a theoretical synthesis of parts of all these schools is possible. However the result is – speaking of “tendencies” – a tendency towards this extre-Marxist schools.

Sertasian;
I think you may have misunderstood Harvey. When Harvey talks about “weak demand” he means “weak *effective* demand”, capital does not recognize any demand other than “effective demand” (ie. a demand backed by purchasing power) anyway.
His idea of a lack of “effective demand” relies on a contradiction between the use-value and exchange-value (the latter being the form of appearance of ‘value’). Essentially his view is that (*if I have understood him correctly*) as accumulation goes on there comes a point where the demand for consumer products do not grow fast enough to keep pace with the required growth in value. So for example if we take a capitalist who is worth 1 billion and compare him to Warren Buffet who is worth more than 50 billion, their demand for consumer goods (ie. their personal consumption) do not show much of difference, and to the extent that they may differ it is certainly not in the ratio of 50:1. HOWEVER, the problem is that both the 1-billion-dollar capitalist and Warren buffet expect the same rate of return on their capital, ie. their profits should measure 50:1. So this means that as your capital grows your personal consumption grows as well but there comes a point after which your personal consumption does not keep pace with your requirements of rate of return on your capital; and this is where the problem could start: department II can not grow (without an effective demand) as much as it should (ie. it grows sluggishly) and this results in a sluggish growth in department I and therefore the whole economy becomes sluggish. This is where people like Kliman and Shaikh would disagree with him (*If I have understood them correctly), they (Kliman and Shaikh) would argue that department I -in a capitalist system- could grow independent of the sluggish growth in department II and in fact make up for dep. II’s sluggish growth.
Harvey’s view is not in contradiction with Marx’s Labour Theory of Value at all. Harvey may be wrong or right, that is a separate issue. But his view is not in contradiction with Marx’s theory of value, that’s for sure.

“If crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the ”monocausality” of crises.”

It is incorrect to say they must have a common cause if we consider that a number of phenomenons that cause crises are themselves recurrent. I am not arguing it is this way I am just saying it is a possibility.

“That’s because these theories argue that there is no fundamental contradiction in capitalist mode of production that causes recurrent and cyclical crises (as Marx claimed); there are only problems with circulation.”

I think it is very mistaken to believe that the criticism of capitalism stands and falls on its rate of profit contradiction. I would go as far to say that it is mistaken to believe that the criticism of capitalism stands and falls on any of its contradictions. Except…

The ultimate contradiction is the social relation upon which it is built, this is where Marx’s theory of capitalist breakdown lies and not with technical aspects of the system. Workers of the world unite you have only your chains to lose says nothing about the level of profit. And nor should it, because that is simply a derivative of the overarching critique of capitalism.

I think Harvey is correct to be sceptical about the data, so much profit is hidden, where is the world rate of profit over an extended period? And if what profit the capitalist makes is important then real wages and employment is even more important, at least to workers.

Capitalism has proved time and again that it can be reformed or renewed, albeit with great pain. What the ‘monomaniacs’ have to show is that the secular rate of profit decline makes reform an ever increasing impossibility. Where is this aspect in the ‘monomaniacs’ theory? There is a danger that by fetishising the falling rate of profit you end up having to give the system credit for yet again escaping out of crisis. You basically judge capitalism by its ability to solve its own problems.

I don’t know about anyone else but I hate capitalism whether it is in crisis or not. And if it gets over a crisis I don’t down tools.

“The ultimate contradiction is the social relation upon which it is built, this is where Marx’s theory of capitalist breakdown lies and not with technical aspects of the system.”

I think the point (and in all of Marx’s work) is that there is no such thing as “technical aspects of the system.” The technical aspects of the system are manifestations of the conflict in the social relations, the conflict between labor and the conditions of labor, that accumulate, intensify, and are made manifest in and by capitalist reproduction.

“The technical aspects of the system are manifestations of the conflict in the social relations, the conflict between labor and the conditions of labor, that accumulate, intensify, and are made manifest in and by capitalist reproduction.”

Yes, within the level of the rate of profit is aspects of the class struggle. But that belief has just as many reformist implications as not believing the rate of profit was the cause of the crisis.

So there are fundamentals, albeit abstract ones. E.g.:

Capitalism is a system built on the exploitation of the working class by a class of capitalists, via the extraction of surplus value.

Edgar says:” Yes but you are talking and fetishising about the level of this and not the fact of it. Actually you are claiming that over time capitalism gets less exploitative!” I’m claiming no such thing but what is true is that it exploits less successfully because less surplus value cn be squeezed out. That isn’t fetish that’s a fact.

And in fact I believe Marx actually argued that the rate of profit tended to fall, not because workers were exploited less but because exploitation intensified in that the falling rate of profit was bound up with an increasing rate of surplus value:

“The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself. Yet they affect the rate of profit in opposite ways. The total mass of profit is equal to the total mass of surplus-value, the rate of profit = s/C = surplus-value/advanced total capital. The surplus-value, however, as a total, is determined first by its rate, and second by the mass of labour simultaneously employed at this rate, or, what amounts to the same, by the magnitude of the variable capital. One of these factors, the rate of surplus-value, rises, and the other, the number of labourers, falls (relatively or absolutely). Inasmuch as the development of the productive forces reduces the paid portion of employed labour, it raises the surplus-value, because it raises its rate; but inasmuch as it reduces the total mass of labour employed by a given capital, it reduces the factor of the number by which the rate of surplus-value is multiplied to obtain its mass. Two labourers, each working 12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours, even if they could live on air and hence did not have to work for themselves at all. In this respect, then, the compensation of the reduced number of labourers by intensifying the degree of exploitation has certain insurmountable limits. It may, for this reason, well check the fall in the rate of profit, but cannot prevent it altogether.”

In your quote Marx simply says that to check the fall in the ROP exploitation may intensify for those workers left in the capital – wage relation! Sort of the opposite of what you say preceding the quote.

One of the, or in any case my, biggest problems with any (Marxist) theory on surplus-value and the rate of profit these days is how to account for “intellectual property”. The amount of labor that goes into it is relatively small (except maybe for the pharmaceutical industry) profits can be huge. I don’t think re-distribution of profit generated in the “real industry” (like with land ownership) on a created monopoly is a sufficient explanation.

On the side: In Roberts’ blog and most of the comments I sense a “revolutionary wish”, the old Marxian reflex, there must be scientific proof for the end of capitalism. Anyone doubting that is a heretic and should be prosecuted.

Intellectual property so-called is not a problem for LTV. Whatever the end product is it will have taken a certain amount of socially necessary labour time to produce. Intellectual property gives you a competitive advantage or a monopoly which allows you to sell that commodity above its real value. By doing so you will be compelling others to sell their commodities below their real value eventually driving them out of business. Ultimately the global monopolies are snuffing out production.

“The amount of labor that goes into it is relatively small (except maybe for the pharmaceutical industry) profits can be huge. I don’t think re-distribution of profit generated in the “real industry” (like with land ownership) on a created monopoly is a sufficient explanation.”

You are confusing the amount of concrete labour hours with the amount of abstract labour hours that goes into the production. As Marx makes clear, in Capital I, concrete labour, i.e. the labour of a brain surgeon, carpenter, or machine minder, produces different amounts of value in an hour, because an hour of each of these different types of concrete labour represents different amounts of abstract labour. How much abstract labour is represented by an hour of any of these types of concrete labour, marx says can only be determined post factum, via the market.

In other words, it depends what prices the products each of these different types of concrete labour sell at in the market, as to how much abstract labour-time each of these concrete labours represents.

So, for example, the product of an hour’s labour by a brain surgeon may be equal in value to the product of 10 hour’s labour by a carpenter. This has nothing to do with the value of the labour-power of a carpenter as opposed to the value of labour-power of a brain surgeon. Its possible that the value of the labour-power of a surgeon could be lower than the value of labour-power of a carpenter, and yet the value of the product of an hour of the latter’s labour, to be many times the value of the product of an hour of the former.

As Marx sets out in Capital I, 1000 of abstract labour may take the form of 1 hour of labour provided by 1,000 workers, or 1000 provided by just 1 worker. If we are talking about a single day, the 1 worker could not work for 1,000 hours, i.e. could not provide 1,000 of concrete labour, but if the value of the product of their labour is equal to the value of the product of 1,000 hours of labour by an unskilled worker, they can easily provide this amount of labour in just 1 hour concrete labour per day!

To give a practical example, an average worker might earn £10 per hour. Along with 1,000 other such workers, they buy tickets costing £50, to go to watch an hour’s performance by some pop star, who takes all the proceedings themselves net. In that case, the value of the product of an hour’s labour might be £10 for simple labour (I’ve discounted the amount of unpaid labour provided here) whereas the value of the product of an hour’s labour by the pop star is equal to £50,000 or put another way, an hour’s concrete labour provided by the pop star is equal to 5,000 hours of simple labour.

As Marx describes, therefore, if the pop star works for an hour, the amount of abstract labour provided is equal to 5,000 hours. If the rate of surplus value is 100%, the same as for all these other workers, in an hour they produce 10,000 of new value, out of which 5,000 hours can be used to reproduce their labour-power. Consequently, this 1 worker will produce the same amount of surplus value for the capitalist as 5000 workers who only provide simple labour.

It only appears that less labour has been provided, because fewer workers are employed. In fact, as Marx sets out in Capital III, in examining the labour provided by such complex labour, because capital increases the provision of public education and so on, to provide itself with more of this skilled complex labour, it can push wages down, and yet the wages of these workers may still be above average, whilst the rate of surplus value from their labour might be higher. The more capital shifts production and consumption on to these types of commodities that are produced using complex labour – relatively small numbers of workers providing large amounts of abstract labour – the more it can raise the rate of surplus value, because the actual length of working-day in abstract hours is extensible to any length. It thereby creates a tendency for the rate of profit to rise, both because the quantity of circulating constant capital relative to the quantity of new value created by this labour falls, but also because the rate of surplus value can be steadily increased.

“So, for example, the product of an hour’s labour by a brain surgeon may be equal in value to the product of 10 hour’s labour by a carpenter. This has nothing to do with the value of the labour-power of a carpenter as opposed to the value of labour-power of a brain surgeon.”

Of course it does– the value of the labor power is the time necessary for the reproduction of the labor power of the brain surgeon and it is greater than the time necessary for the reproduction of the labor power of the carpenter.

In the same way that the value, the time necessary for the reproduction of the labor-power of a carpenter, machinist, is greater than that necessary for the reproduction of the labor power of the laborer sweeping floors, loading/unloading trucks etc.

That the renumeration in wages or fees can deviate from the value is just another iteration of the deviation of price from value which “zeros out” in the long run.

The value of labour power is not the same as the value created by the labour. Although it’s true that the value of complex labour power ‘reflects’ the costs of it’s reproduction – the training of the brain surgeon, etc. – the issue is what this means for the rate of surplus value and why it tends to be higher when complex labour is performed. I think it may have something to do with the extra costs associated with reproducing complex labour being distributed throughout society as they are usually provided by the state.

This is a quite welcome debate. Marx’s Capital has been used by many economist-Marxist and mainstream-as a grab bag out of which are taken quotes to prove their own economic theory-sometimes claiming it to be Marx’s, or to prove Marx’s supposed inconsistency. The important question is whether Marx’s theory of of capitalist development is a coherent theory that can explain capitalism’s past, its present, and its future limitations. However, there are two corollary questions. What did Marx’s think his theory of capitalist accumulation implied about the limits of capital, and what is the relation between that theory of capitalist accumulation and socialist revolution.
Boffy says: ‘This indeed, is the basis of all forms of catastrophism. It is trying to replace your inability to convince the majority of your view of a better future, with a mechanical belief that the present will become significantly worse, and thereby achieve your goals for you. Instead of a view that the future develops out of a progressive development, and maturation of existing society, it posits the future developing out of a crisis, and retrogression of existing conditions that drives workers to seek an alternative, that they have not been previously convinced would be any better. It is, therefore, a seriously reactionary perspective.’
Here are a couple of quotes from some reactionaries:
‘According to the laws of bourgeois economics, the greatest part of the product does not belong to the workers who have produced it. If we now say: that is unjust, that ought not to be so, then that has nothing immediately to do with economics. We are merely saying that this economic fact is in contradiction to our sense of morality. Marx, therefore, never based his communist demands upon this, but upon the inevitable collapse of the capitalist mode of production which is daily taking place before our eyes to an ever greater degree; [my underline].” p11, Engels preface to the first German edition of Marx’s The Poverty of Philosophy, 1884
At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure. [My underline]preface to A Contribution to the Critique of Political Economy on p263 of volume 29 of the Collected Works
In other words, Marx was a a catastrophist. It is up to us to argue whether Marx was correct in arguing that his theory implies that capital becomes a fetter on development, or that Boffy is right to argue that ‘the future develops out of a progressive development, and maturation of existing society’. Perhaps Boffy thinks like Heinrich that Marx changed his mind and discovered the error of his way. But, in 1875, Marx wrote the following to Lavrov: ‘The shrortening of the periods between great crises is truly remarkable. I have always considered the periods not to be of a constant length, but of a diminishing length: it is particularly satisfying to find that shows such manifest signs of a descending movement; that is a bad omen for the longevity of the capitalist world.’ Marx clearly argues tthat capitalism generates ‘great crisis’ (Marx) that impede ‘the development, and maturation of existing society.
‘Thus, while the rate of profit will be inversely related to the value of the capital, the sum of profit will be directly related to it. However, even this statement is true only for a restricted stage of the development of the productive power of capital or of labour. … Beyond a certain point, the development of the powers of production becomes a barrier for capital; hence the capital relation a barrier for the development of the productive powers of labour. When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter. … The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self- preservation, is the most striking form in which advice is given it to be gone and to give room to a higher state of social production. … Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow. …
Of course there are ways to delay this process:
There are moments in the developed movement of capital which delay this movement other than by crises; such as e.g. the constant devaluation of a part of the existing capital: the transformation of a great part of capital into fixed capital which does not serve as agency of direct production; unproductive waste of a great portion of capital etc. (Productively employed capital is always replaced doubly, as we have seen, in that the positing of value by a productive capital presupposes a counter-value. The unproductive consumption of capital replaces it on one side, annihilates it on the other. [*] That the fall of the rate of profit can further be delayed by the omission of existing deductions from profit, e.g. by a lowering of taxes, reduction of ground rent etc., is actually not our concern here, although of importance in practice, for these are themselves portions of the profit under another name, and are appropriated by persons other than the capitalists themselves. [**] The fall [in the rate of profit] likewise delayed by creation of new branches of production in which more direct labour in relation to capital is needed, or where the productive power of labour is not yet developed, i.e. the productive power of capital.) (Likewise, monopolies.)’Grundrisse, 748-50.’
From these quotes of Marx and Engels we see that they were ‘catastrophist’ and that Boffy is pretty much full of it on that question. Of course, Heinrich and Clarke could be right that Marx’s theory is incorrect and that he later changed his mind about the FROP, but how does one explain how Marx did not let poor old Engels in on his realization, or how would Marx explain his letter of 1875 where he continues to argue that capitalism seems to confirm his belief that great crises become more frequent? What about capitaism makes crises more frequent?
As for Roberts use of statisice to prove that the FROP has been empriically verified, I believe that that is an impossible task because, more than ever, capitalism has become a world system and the relevant rate of profit would be the world rate of profit and that would require a monumental task since statistics would have to be kept throuout the world. The CPUSA economist pointed this out years ago:
‘Direct foreign investments are now a matter of prime importance in determining the long term-trend in the rate of profit of monopoly capital. Those who use statistics relating only to the domestic operations of US capital to ‘verify’ Marx’s law of the tendency of the rate of profit as an absolute trend of US capital are wrong to ignore this significant feature of Marx’s discussion of this question.’ p135 Victor Perlo, Superprofits and Crises. [My bold]
Marx’s methodology was to explain the laws of mation as if ‘capital in general’ were already a world-wide phenomenon:
‘In order to examine the object of our investigation in its integrity, free from all disturbing subsidiary circumstances, we must treat the whole world as one nation, and assume that capitalist production is everywhere established and has possessed itself of every branch of industry.’p727, vol 1, note 2
This was because he was trying to show the endogenous laws of motion of any capitalist society, regardless of the exogenous factors that could affect its development. It would be later Marxist such as Lenin, Luxemburg, Hilferding, etc. who would attempt to explain how that law of motion would be affected. But Marx knew full well that capitalist development would be greatly affected by those exdogeous factors:
‘From the possibility that profit may be less than surplus value, hence that capital [may] exchange profitably without realizing itself in the strict sense, it follows that not only individual capitalists, but also nations may continually exchange with one another, may even continually repeat the exchange on an ever-expanding scale, without for that reason necessarily gaining in equal degrees. One of the nations may continually appropriate for itself a part of the surplus labour of the other, giving back nothing for it in the exchange, except that the measure here [is] not as in the exchange between capitalist and worker.’p872, grundrisse
Finally, Michael wrote something that I do not think is correct, at least as regards to Lenin.
The early Marxists after Marx: Kautsky, Lenin, Bukharin, Luxemburg, Hilferding and the Stalinist economist, Varga, rejected the LTRPF as driver of a Marxist theory of crises2. Indeed, it was only in the 1920s and 1930s that Henryk Grossman and Paul Mattick put forward the LTRPF.’
Rosa Luxemburg did say the following:
‘Or else we are left with the somewhat oblique comfort provided by a little ‘expert’ from the Dresdener Volkszeitung who, after thoroughly destroying my book, explains that capitalism will eventually collapse ‘because of the falling rate of profit’. One is not too sure exactly how the dear man envisages this – whether the capitalist class will at a certain point commit suicide in despair at the low rate of profit, or whether it will somehow declare that business is so bad that it is simply not worth the trouble, whereupon it will hand the key over to the proletariat? However that may be this comfort is unfortunately dispelled by a single sentence by Marx, namely the statement that ‘large capitals will compensate for the fall in the rate of profit by mass production’. Thus there is still some time to pass before capitalism collapses because of the falling rate of profit, roughly until the sun burns out.’ Anti-critique’ footnote pp76-7
Rosa Luxemburg did not accept FROP and looked for the cause of breakdown somewhere else, but I have never found anything so clearly stated in Lenin about FROP. His writing (theoretical) on economics usually addressed concrete problems-development of capitalism in Russia, Imperialism. As far as crises and capitalist collapse are concerned, he said the following:
‘The position of revisionism was even worse as regards the theory of crises and the theory of collapse. Only for a very short time could people, and then only the most short-sighted, think of refashioning the foundations of Marx’s theory under the influence of a few years of industrial boom and prosperity. CW 15, pp29 39
At the beginning of the war the traitor socialists and opportunists boasted of the tenacity of capitalism and derided the “fanatics or semi-anarchists”, as they called us. “Look,” they said, “these predictions have not come true. Events have shown that they were true only of a very small number of countries and for a very short period of time!” And now, not only in Russia and not only in Germany, but even in the victor countries, a gigantic collapse of modern capitalism is beginning, a collapse, so gigantic that it frequently removes this artificial apparatus and restores the old capitalism.p165, Lenin, Collected Works vol29
What Lenin did in Imperialism is suggest that not just economic collapse could create a revolutionary situation, but rather that Imperialism itself was generating revolutionary situations. He well understood that Imperialism itself was the result of the development of capitalism. What Grossman added to Lenin was to explain that Imperialism and war are the result of capitalist accumulation leading to a FROP and the decline in the mass of profit.

A brain surgeon wage is higher because the scarcity of this type of workpower gives him an advantage in his class struggle. He can demand higher than his yield in hours, so his contribution for the social capital is negative.
The same can be said for advanced countries so they can only sustain themselves by taking a huge amount of hours from underdeveloped countries, or by having an extremely large poor underpayed workingclass.

Brain surgeons are rare but that’s not the same as scarcity and it’s possible to have a glut of specific highly skilled labour.

The point Boffy is making, as I understand it, is that the maximum rate of surplus value is not limited by the length of the working day (or 24 hours) when complex labour is introduced. Just because their wages are much higher than the average tells you nothing about the level of exploitation. Don’t know if it’s right but pretty important if it is!

Yes, there’s also the social need for brain surgeons. My reasoning in my previous post was for something everyone might need. By need here I refer to the most basic commodity fetishism, the ones required by survival instincts. If it’s something that is only needed in very special circumstances, like an astrophysicist professor, with a similar job in terms of complexity, the picture changes. If you compare the average wage of an astrophysicist professor and of a brain surgeon, in most places, the latter will beat the former. In fact, a person will the required skills to get an astrophysicist job might end up unemployed and working somewhere else.

A trash collector has a social need far higher than that of a brain surgeon, but the complexity of the job is lower, so quite a larger quantity of people will be able to do it. So, this is quite like say’s law, except that workers are subjected to class struggle, so they can resist the will of the capitalists to treat them as commodities and fight for better conditions.

“Marx, therefore, never based his communist demands upon this, but upon the inevitable collapse of the capitalist mode of production which is daily taking place before our eyes to an ever greater degree”

The error that H A Cox makes here is to believe this inevitable collapse is purely a technical economic question. When profit rate reaches X level then collapse ensues. This is wrong, the inevitable collapse of capitalism that Engels refers to isn’t the single factor of profit rate but their whole materialist conception of history! So when Engels says the inevitable collapse is taking place daily before our eyes he means the rise of socialist political parties and the increasing activity of the proletariat, as well as economic factors. And, by the way, if Engels did mean what you infer then he was wrong because unless I have missed something we still have capitalism!

That doesn’t mean I accept Boffy’s view that it is reactionary to believe crises are a basis of overthrowing the system. The dialectical view is to say that socialism springs from the progress of capitalism but that economic downturns provide an impetus and motive to overthrow the system. Boffy can’t simply dismiss.

The point is a fundamental one, which is made by Marx in differentiating between the value of labour-power, as a commodity, and the value of the product of labour. It is the fundamental difference described by Marx in pointing out the mistake of Adam Smith, who confused the value of labour-power with the value of labour, and therefore, prevented himself from being able to explain the existence of surplus value. As Marx points out labour has no value. It is rather the measure of value itself.

Once this is understood, then its clear that the value of any particular labour-power has nothing to do with the value of the product of that labour. Marx makes this clear in Capital III, Chapter 17 discussing such complex labour, where he says,

“The commercial worker produces no surplus-value directly. But the price of his labour is determined by the value of his labour-power, hence by its costs of production, while the application of this labour-power, its exertion, expenditure of energy, and wear and tear, is as in the ease of every other wage-labourer by no means limited by its value. His wage, therefore, is not necessarily proportionate to the mass of profit which he helps the capitalist to realise. What he costs the capitalist and what he brings in for him, are two different things… The commercial worker, in the strict sense of the term, belongs to the better-paid class of wage-workers — to those whose labour is classed as skilled and stands above average labour. Yet the wage tends to fall, even in relation to average labour, with the advance of the capitalist mode of production. This is due partly to the division of labour in the office, implying a one-sided development of the labour capacity, the cost of which does not fall entirely on the capitalist, since the labourer’s skill develops by itself through the exercise of his function, and all the more rapidly as division of labour makes it more one-sided. Secondly, because the necessary training, knowledge of commercial practices, languages, etc., is more and more rapidly, easily, universally and cheaply reproduced with the progress of science and public education the more the capitalist mode of production directs teaching methods, etc., towards practical purposes. The universality of public education enables capitalists to recruit such labourers from classes that formerly had no access to such trades and were accustomed to a lower standard of living. Moreover, this increases supply, and hence competition. With few exceptions, the labour-power of these people is therefore devaluated with the progress of capitalist production. Their wage falls, while their labour capacity increases.”

In other words, as marx says the value of labour-power and the value of the product of labour are “two different things”, and far from one being determined by the other, the value of the product of labour can be rising, as the value of the labour-power employed is falling.

But, this here is only in relation the value of the product of skilled labour. Its complexity derives from its possession of skill. But, as Marx points out, labour may be complex without necessarily being skilled, in the sense of some skill that can be learned etc. It may be complex simply because it is an ability that is in great demand. The product of a top class footballer, for example, or of a singer, or an actor, may in part be a result of training, and so on, the cost of which can be objectively determined, but it may just be the product of natural ability, or a quality that finds favour amongst consumers.

In terms of the value of the labour-power of such workers, it may be no higher than that of any other worker, therefore, and yet the value of the product of that labour may be many, many times that of simple labour, because the particular use value they produce is in great demand, consumers are prepared to pay much more to obtain that use value, than are for some other use value.

And, it is quite correct that on this basis there are not 24 hours of abstract labour in any day, but an infinite number dependent upon the multiple by which any particular complex labour stands to simple labour. There are only 24 hours of any particular concrete labour in a day, but if that concrete labour is complex, and is the equivalent of say 10 hours of simple labour, then this particular concrete labour represents 240 hours of abstract labour in a day.

Such a worker who works for 8 hours in a day, produces 80 hours of new value. As Marx sets out above in Chapter 17, therefore, such a worker may be paid wages equal to 20 hours of abstract labour, and thereby produce 60 hours of surplus value per day. The rate of surplus value would then be 300%. Some simple labour, however, may work for 8 hours per day, thereby and be paid wages equal to 5 hours of abstract labour, producing just 3 hours of surplus value.

Despite the fact that the first worker is paid wages four times greater than that of the second worker, they produce 20 times the amount of surplus value. The rate of surplus value of the second worker is only 60%.

This is a similar point to that made by Marx in comparing wages of workers who work with more advanced machinery, and whose labour stands as complex labour in relation to the labour of others who do not work with such machinery. Yet, marx says, the value of the labour-power of the two sets of workers is the same, so that the rate of surplus value of the more productive workers is higher.

It is why those economies that have moved their production to types of production that are high value, and require the application of such complex labour, are able to produce large amounts of surplus value with relatively small workforces, creating a high rate of profit, and are thereby enabled to exchange their output in the world market for large amounts of simple labour.

Crises provide a spur for workers to look for alternatives to capitalism. They provide a spur for workers to create their own co-operative property and other such organisations, as well as to engage in the kind of political action you describe. At a certain point when they have developed their own forms of property, and their own organs of power based upon it, in opposition to those of capital, such a crisis may be the spark for them launching a conscious struggle for political power.

What is reactionary is to replace that perspective of class struggle, with a rather lazy perspective based upon the idea that at some point the very mechanism of capitalism drives towards such a deterioration of conditions that workers will be driven to accept almost anything as a better alternative to what they have.

That is why the Stalinists had such a perspective of catastrophy summed up in the concept of immiseration, and some of the more swivel eyed contributors to this discussion express a similar viewpoint both in their comments here, and elsewhere.

But, you can see the same approach in all forms of catastrophism, going back to malthus and beyond. The environmentalist catastrophists for as long as i can remember have been predicting that the operation of industrialism would lead to a similar type of catastrophe, of the oil running out, of pollution running out of control and so on. I have seen those warning for at least 50 years, yet in my youth, people died in London from the “Pea soupers” of smog, a thing long gone.

I lived in a village, where every night the air was filled with a dense clogging sulphury smell, as the ovens at the local gas and coke works were opened. The area where it was situated was once the most polluted land in Europe. Today, it is a country park. The brick of the houses where I lived was black with the soot from the coal burned in homes and in factory kilns and furnaces. A feature long since gone. Rivers were clogged up, fish dead, and now both they and the local canals have been cleaned up, and are once more a home to fish, as well as used for leisure pursuits.

Instead of the oil and other materials running out, they are at real terms prices cheaper than ever, and production expands far faster than the consumption of those materials, because new efficient means of using them, and of producing alternative materials, as well as production shifting to differrent types of commodities that do not require such materials, has expanded vastly.

Yet, the environmental catastrophists, having failed – and given the facts justifiably failed – to persuade people that they were going to hell in a hand cart unless they accepted their warnings, and prescription of how to live their life, have only be left with warning people that unless they repent now, catastrophe is approaching, and it will be much worse.

You can see the same approach any weekend on Hyde Park corner where sinners are told to repent. Those who have miserably failed to convince the majority of the correctness of their opinion, have always fallen back on such threats of catastrophe to come. It is that which is reactionary.

Victor: I think there is a confounding of a need for exactitude in theoretical science with political practice. Hence the intensity of discussion is a requirement for the former, while a non-sectarian approach is required for success in the latter. No doubt quite a few Marxists have contributed to such confusion in the past (and still in the present).

The intensity of disputes will be even higher in social science than natural science, where empirical confirmation is more readily available. But divergent theories must be pursued to the end, as Galilean and Ptolemaic theories of the solar system cannot coincide in one and the same universe, nor can a valid synthesis be made of the two. Harvey no doubt thinks there is a “super-theory” that can reconcile the different theories of capital, and sees his own effort as progress towards such a synthesis. I think they are fundamentally irreconcilable with the Marxist theory, as it is the only one standing today that posits a theory of value as a fundamental framework.

@bruciebaby Tried to find what Carchedi had to say on the subject but I couldn’t find it in the parts of the book that are on Google. Probably my bad.

Prosecution: Well maybe both sides are guilty, although I found the of Harvey’s essay really mild.

@davidellis987 A thought experiment. Engineer A finds a way to completely automate the production (from begin to end) of X. The necessary labor time = 50. Still A didn’t create (surplus)value as this 50 is distributed over an infinite number of X.

If the capitalist invested £500,000K and he turned over £500,000K there would be no profit and no point. This only way he could make a profit under these circumstances is if he underpaid for the constant capital or he had a complete monopoly and could charge what he liked in which case he’s be making monopoly profits at the costs of all the other capitalists who would have to seel commodities below their value to compensate.

“Engineer A finds a way to completely automate the production (from begin to end) of X. The necessary labor time = 50.”

SNLT = 50, so not completely automated then!

Anwar M. Shaikh, and also Paul Cockshott I believe have written lots to address your ‘thought experiment’ – (a rather lofty term for something so ill thought out incidentally), which can’t really be summarised in a few paragraphs (but hey there goes the difference between science and ‘thought experiments’).

As noted below the necessary labor is the labor of engineer A. After his invention no additional labor is necessary. Indeed it would probably mean the end of capitalism. But the proletariat also ceases to exist. Without a revolution we all have become witless playing children as in HG Wells’ Time Machine

“@davidellis987 A thought experiment. Engineer A finds a way to completely automate the production (from begin to end) of X. The necessary labor time = 50. Still A didn’t create (surplus)value as this 50 is distributed over an infinite number of X.”

Old story: Henry Ford takes Walter Reuther, after the UAW successfully organizes the Rouge plant, on a tour. Henry shows Walter an experimental completely automated mini-assembly line. Henry turns to Walter and says: “This is the future, Walter. Who are you going to organize when it becomes a reality?”

Well of course the answer is those people who buy cars made by manufacturers that do not have fully automated assembly lines will buy the Ford cars because the price of those automobiles will be less than the prices of the “hand-made” cars. Profit will be redistributed away from the “old” to the “newer” capital.

Profit will be, as it is now, allocated based on size, and relative efficiency, of capitals.

Of course, Walter’s response and Henry’s question, does obliquely hit upon the limit to capital– which is to say without necessary labor-time, there can be no surplus labor-time. Without surplus labor-time there can be no surplus value and without surplus value there can be no profit.

Think about it. No labor necessary for any portion of capitalist production; what then can compel human beings to off their labor-power in exchange for the means of subsistence– in exchange for the material to reproduce that labor-power as a commodity for further exchange?

That’s a good practical question, but sartesion’s proposition did not address counter-tendencies that would prevent a fall in price. And in fact Marx’s original formulation in Vol III of Capital also assumed the case of constant prices at an equalized ROP, and therefore that the most productive capitals would realize a *surplus profit*. They can then lower their prices marginally to increase market share, or just rake in the whole surplus profit.

Otherwise, assuming the same global productivity of capital, if the JPYUSD pair falls (as it has recently), Japanese automakers selling into the USA realize an instant surplus profit, since they compete with US automakers in the US market, who do not benefit from the fall of the Yen. So no pressure on Toyota to drop prices in the US.

Another point is that things can feel pretty miserable even when capitalism is growing.

In general, crisis, is a footnote in Capital. It’s not central to Marx’s argument. His is more the long view, which seems pretty solid. In that organic capital (‘cheap labor’) is vital to profits but is steadily eroded away as capitalism matures in any geographic location. Where would capitalism be without China ? Neo liberalism would have been a flop without the introduction of China into the world economy.

This discussion reminds me of the discussion in the 1950’s over Marx’s supposed theory of immiseration. The “Textbook of Political Economy” published in the USSR in 1954 stated that this absolute impoverishment of the workers was expressed in a fall in real wages. It went on to claim that the real wages of workers in the US, UK and other developed capitalist economies were lower in the 20th century than they had been in the middle of the previous century. Moreover, it claimed that by 1938, real wages in the US were only 74% of what they had been in 1900, and claimed the situation in France and Italy was even worse. Leontiev in 1955, published a series of papers in Trud claiming that US real wages in 1947-51, were 15% less than in 1938-40.

Having no difficulty in poking fun at these ridiculous claims, Mandel says that by putting the claims together you arrive at the conclusion that between 1850 and 1950, US real wages fell by 50%! For a long time Stalinist economists continued to defend this ridiculous claim that workers real wages were declining, and had to because they were tied to the dogma that Marx had a theory of immiseration that required that this be the case. Why did they hold to such a theory, when it was the theory not of Marx, but of the the Lassalleans, a theory that Marx specifically attacks in his Critique of the Gotha Programme? Because, they needed to argue that capitalism had an inbuilt drive to destruction. The reason in turn for that was that Stalinism had decisively failed to convince the majority of workers that their vision of the future was better than the reality of the workers present under Capitalism. This indeed, is the basis of all forms of catastrophism. It is trying to replace your inability to convince the majority of your view of a better future, with a mechanical belief that the present will become significantly worse, and thereby achieve your goals for you. Instead of a view that the future develops out of a progressive development, and maturation of existing society, it posits the future developing out of a crisis, and retrogression of existing conditions that drives workers to seek an alternative, that they have not been previously convinced would be any better. It is, therefore, a seriously reactionary perspective.

As Mandel states, (Marxist Economic Theory, p 151) Rosdolsky collected all the references to wages in Marx’s writings, and of the thousands he reviewed, there was just one that might be considered confusing as to the possibility of an upward trend in real wages with a marked increase in productivity. Yet, the Stalinist economists continued to argue that Marx had a theory of absolute immiseration, and continued to produce their “statistics” to prove that real wages were falling in the West, when anyone with eyes could see that they were advancing in ten league boots.

The same is true of the attempt to claim that Marx believed that capitalist crises are caused by the law of the tendency for the rate of profit to fall. As Rosdolsky did in relation to falling real wages, I have gone through all of Marx and Engels writings on crisis, and on the falling rate of profit. I have detailed what they have to say in my book Marx and Engels’ Theories of Crisis: Understanding The Coming Storm and there is nothing in what they write to substantiate any claim that Marx and Engels theories of crisis are based on the law of the falling rate of profit.

In fact, the main discussion of crisis conducted by Marx is in Theories of Surplus Value Part II, Chapter 17, and in nearly 50 pages of that discussion, Marx does not refer to the falling rate of profit once! There is not even one single syllable of a reference to it, in Marx’s main discussion of the theory of crisis to it being a consequence of the falling rate of profit. Quite the contrary, much of the discussion is taken up in a critique of Ricardo, and his theory of crisis, and of the rate of profit. And, in fact, some of those who propose the idea of the falling rate of profit being the basis of Marx’s theory of crisis have a position closer to that of Ricardo, which Marx was dismissing, that they do of Marx himself.

Once again, the connection to catastrophism and immiseration emerges. In his critique of these theories, Marx sets out that for Malthus, the mechanism was that accumulating profits, meant accumulating capital, which created a growth of the working population, faster than the production of food could occur, due to diminishing returns. The consequence would be over population and starvation of workers. His answer was that the landlords and aristocrats who he represented should take a bigger share of the surplus, as unproductive consumption, preventing too rapid accumulation of capital.

Ricardo, using the same argument about diminishing returns, which is the basis of his Theory of Rent, concludes that as the price of food rises, the value of labour-power rises, and so wages rise, thereby squeezing profits. As this process continues, profits get squeezed so much that they begin to fall absolutely, and capitalism itself becomes in danger of collapse. It was this fear, Marx says that grips the capitalists and their apologists. But, the whole purpose of Marx’s analysis here is to show that these arguments were false, for several reasons. Firstly, the law of diminishing returns itself is false. Rising productivity meant that food production, and production of other commodities, rose faster than population growth (and it continues to do so). So, the value of labour-power fell rather than rose, and real wages could thereby rise not fall. Secondly, even if the rate of profit did fall the mass of profit not only could but must rise, and so capital continues to accumulate. In fact, Marx points out that apart from temporary fluctuations, the mass of capital always grows by a greater proportion than the fall in the rate of profit.

In fact, an examination of Marx and Engels writings on crises of overproduction shows that rather than it being a fall in the rate of profit that leads to the crisis, it is usually a high and rising rate of profit, and it is crises which lead to a sharp drop in the rate of profit! For example, in Capital III, Chapter 6, Marx examines the effect of such periods of boom and high and rising rates of profit on input prices. He demonstrates that the consequent sharp rise in demand for inputs – he was looking at the price of cotton, as British textile producers rapidly expanded their production, and many new producers entered the market to obtain these high profits – causes the price of these inputs to rise sharply, independently of any change in their value, because supply cannot be expanded quickly enough to meet the increased demand.

The sharply higher input prices have two effects. Firstly, they increase the “value composition” of capital, completely separately from any change in the organic composition of capital. That is it is not rising social productivity that causes a greater quantity of cotton to be processed relative to the labour-power that processes it, it is simply that cotton has become much more expensive. The amount of capital that must be advanced increases sharply, and consequently this causes a fall in the rate of profit not due to “the law of falling profits”, but simply as a result of these higher input prices. Secondly, beyond a certain point, the higher input costs cannot be passed on in the price of the final product, because – and this is especially the case under conditions of boom, where demand and supply of the final commodity has increased substantially, and so where the elasticity of demand is higher – higher prices cause increased consumer resistance. As Marx sets out, because capitalist production is geared to high levels of output, suppliers cannot quickly reduce their production, as they find demand being curtailed at these higher market prices. In order to maintain production at their current high levels required for efficiency, individual capitals are thereby forced to absorb some of the rise in input costs themselves, and thereby to accept a smaller realised profit.

It is not the tendency for the rate of profit to fall that results in the subsequent crisis, as market prices fall below production costs, but quite the opposite, a high and rising rate of profit that leads to over expansion. So, Marx writes,

“If the price of raw material rises, it may be impossible to make it good fully out of the price of the commodities after wages are deducted. Violent price fluctuations therefore cause interruptions, great collisions, even catastrophes, in the process of reproduction.”

(Capital III, Chapter 6)

But, in the Capital III, Chapter 15, which is the main source of the claims that Marx’s theory of crisis was based on the law of falling profits, what Marx actually sets out is again this scenario of a crisis caused by high and rising profits causing over expansion. He writes,

“In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

(Capital III, Chapter 15)

In other words, in both instances of his description of a crisis of overproduction here, Marx describes it as arising not from the law of falling profits, but the opposite, conditions of rapidly rising rates and masses of profits, causing a rapid extension of accumulation, in the one case causing the price of raw materials to rise sharply that cannot be passed on, and in the second of wages rising rapidly as the reserves of labour-power are used up, and thereby causing a fall in the rate of surplus value, in both cases causing a profit squeeze, whereby market prices fall below the costs of production.

If we look at the two actual crises that Marx and Engels examine in depth, we see exactly the same position. The crisis of 1847, is pretty identical to the crisis of 2008. A new long wave boom had begun around 1843, just as a new long wave boom began in 1999. Engels describes the fact that the basis of the boom was a rapid increase in global trade (again seen after 1999) and rising rates and masses of profit. Yet, despite huge amounts of investment in productive-capital (again as seen in the development of China and other economies, as well as in the development of whole new industries in technology etc) the masses of profits were such that they could not all be used productively, and so went into the money market causing the rate of interest to drop significantly, again witnessed as the rate of profit rose from the late 1980’s, and seen more significantly after 1999. This then also fed through into financial speculation. In the 1840’s it was the railway mania, after in the 1990’s, and particularly after 1999, it was the technology bubble, and the property bubble.

It was not a falling rate of profit that caused this crisis, but a sharply rising rate and mass of profit. It was in fact, to begin with not an economic crisis of overproduction, but a financial crisis of the kind that Marx describes in Capital I, when he writes,

“The monetary crisis referred to in the text, being a phase of every crisis, must be clearly distinguished from that particular form of crisis, which also is called a monetary crisis, but which may be produced by itself as an independent phenomenon in such a way as to react only indirectly on industry and commerce. The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance.” (note 1 p 137)

Yet, just as the financial crisis of 2008 had substantial after effect on the real economy, so the financial crisis of 1847, had a substantial economic after effect, especially when combined with the effects of the 1844 Bank Act in promoting a credit crunch. After 1847, Marx says the UK economy shrank by 37%! But, the nature of that crisis as a financial crisis within the context of a global long wave boom and rising rates and masses of profits is illustrated by the fact that, as Engels points out, once the financial panic had been resolved by the suspension of the bank Act, and the masses of fictitious capital had been destroyed, facilitating the investment once more into productive-capital, the crisis was quickly overcome and the boom resumed the following year, and continued through to the crisis of 1857. Once again, they describe the crisis of 1857, as essentially a financial crisis, provoked by financial speculation and fraud, that is sparked by the collapse of the Ohio Life Company. But, again, once the Bank Act is suspended, and liquidity enters the system, the financial panic dies out, and the boom continues for another ten years, until the long wave conjuncture turns.

So, its clear that neither in their theoretical discussion of crises, nor in their practical analysis of actual crises is there anything to justify the claim that Marx and Engels theory of crisis is based upon the law of falling profits, quite the contrary.

When the proponents of this idea come to analyse actual crises they are then faced with a similar problem. If the fall in the rate of profit is to lead to crises because it leads to a failure of capital to invest, then how are we to understand a crisis of overproduction in the terms that Marx and Engels describe, where too much investment occurs, not too little! And reminiscent of the discussion over immiseration in the 1950’s, when we come to look at an actual crisis like 2008, the idea that it is caused by a falling rate of profit simply does not fit, because at least most of the proponents of the notion themselves admit that, in fact, from the late 1980’s the rate of profit was rising – even in the US – not falling. So, we are then presented with the argument, again reminiscent of the immiseration debates, that well yes, it might have been rising, but it never got to the highs it reached previously after WWII.

But, if the rate of profit is falling over time, we could then presumably argue, in similar vein to the way Mandel argued in relation to the immiseration claims, that in that case, the rate of profit after WWII, never reached the highs it did, during some previous cycle, say at the start of the 20th century, which in turn would have never been as high as the highs of the cycle before that, some time in the latter part of the 19th century, and so on back several centuries to the start of capitalist production! In that case, we should have a theory not of periodic crises, but of at least semi-permanent crisis, because even at its highs, the rate of profit today would have to be below the rate of profit at its lowest point at some date in the dim and distant past.

But, not only do we not have such a state of semi-permanent crisis, Marx himself specifically rejects the notion of it. In theories of Surplus Value II, attacking such notions, he comments,

“When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

The proponents of this notion could be forgiven for claiming that Marx’s theory of crisis was based on the law of falling profits despite there being no evidence for such a claim, if at least they could show that actual crises were the result of the law of falling profits, but they can’t, any more than the proponents of immiseration can show that workers real wages fall over the long term.

Moreover, the calculations of the rate of profit used to claim that it was falling, or not rising above previous levels are themselves unreliable. Any calculation of the rate of profit based on National Income data is useless, for the reasons Marx sets out. All National Income is comprised of revenues as either wages, dividends, rent, or taxes. But, as Marx sets out in Capital II, criticising Adam Smith, for confusing this National Income with the value of national output, each of these are resolved into just V + S, i.e. into the new value produced by labour in the current year, whilst the value of output is comprised of C + V + S, i.e. it comprises in its largest part not the new value created this year, but the value of constant capital (circulating constant capital plus wear and tear of fixed capital) arising from the production of many previous years.

If you calculate the rate of profit on a value of output derived from the National Income data, by taking the amount of all non-wage income, and measuring it against the value of total National Income, less that surplus, what you obtain is not a rate of profit, but only a rate of surplus value. National Income is only S + V, and you have simply measured s/v. Nor is this helped by including in the calculation a measurement against the stock of fixed capital, again for the reason Marx sets out. The greatest portion of C in the value of national output is not comprised of fixed capital, but of circulating constant capital, and that proportion must rise against the value of fixed capital over time, if the rise in social productivity is to mean anything.

But, even allowing for the fact that what is being measured is not the Marxist rate of profit on this basis, the calculations of the rate of profit are wrong, because they do not take account of changes in the rate of turnover of capital, a factor that Marx and Engels specify is of the utmost significance. To his credit, Estoban Maito has at least tried to make such calculations, but his attempts are flawed by an incorrect methodology, as I have set out in several pots on my blog. The consequence is that he arrives at what are ludicrous conclusions, when considered on the basis of an analysis of what we know about the real world.

For example, on the basis of his metrics and methodology, Maito works back from his current calculations of the rate of turnover, to arrive at a figure of the rate of turnover in the middle of the 19th century, of just 1.5. That is ludicrous because with such a low rate of turnover, the development of industrial capital would have been impossible. But, it is ludicrous also because Engels himself, on the basis of analysis of actual company data, and his own practical knowledge as a capitalist manufacturer, tells us in Capital III, Chapter 4, that the rate of turnover in 1870, was 8.5 times, or about 5 times what Maito claimed it to be.

If we take these things into consideration, it is clear that even the fall back position adopted by the catastrophists, that the rate of profit might have been rising, but not by enough compared to the past, also falls.

“I have gone through all of Marx and Engels writings on crisis, and on the falling rate of profit…and there is nothing in what they write to substantiate any claim that Marx and Engels theories of crisis are based on the law of the falling rate of profit.”

Apparently Boffy missed this from Capital Volume 3, Chapter 15: Development of the Law’s Internal Contradictions; 1. General Considerations:

“On the other hand, however, in view of the fact that the rate at which the total capital is valorized, i.e. the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is its sole purpose), a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital alongside a surplus population.”

And Marx goes on the describe the “horror” economists like Ricardo experience in confronting the FROP as being the glimmer of the recognition that capital is historical, transitory and not an absolute mode of production for wealth, but rather a mode that comes into conflict with the production of wealth.

Later in the same chapter Marx notes:

“Periodically however too much is produced in the way of means of labour and means of subsistence, too much to function as means for exploiting workers AT A GIVEN RATE OF PROFIT.” (my emphasis).

And:

“it is impossible to accomplish this process [transforming surplus value back into new capital] without ever-recurrent explosions.”

And:

“The barriers to the capitalist mode of production show themselves as follows:
(1) in the way that the development of labour productivity involves a law, in the form of the falling rate of profit, that at a certain point confronts this development itself in a most hostile way and has constantly to be overcome by way of crises.
(2)in the way that it is the appropriation of unpaid labour, and the proportion between this unpaid labour and objectified labour in general– to put it in capitalist terms, profit and the proportion between this profit and the capital applied, i.e. a certain rate of profit– it is this that determines the expansion OR CONTRACTION of productions….Production comes to a standstill not at the point where needs are satisfied by rather where the production and realization of profit impose this.

And Marx continues in this line of reasoning, establishing a most vivid critique of the limits to capitalism as expressed in and determined by the rate of profit.

But for Boffy there’s nothing in Marx that links the fall in the rate of profit to crisis… Sure thing, and Boffy has read everything, absolutely everything in Marx about the rate of profit, except of course the one place where Marx develops the internal contradictions of the law.

Form of crisis is related to specific nature of capitalist production – capitalist and wage labourer, exchange value and use value contradiction, money as means of payment, distinction between buyer and seller etc etc. These forms contain the possibility for crises to become general. But they are not the cause of the crisis. However crises exist because of the form that capitalism takes. So they are not the direct cause of a crisis but they are the reason they exist.

This brings me to the causes of a crisis, and how it is wrong to assume these are more important than the forms described above. The cause of the crisis, for example falling rate of profit?, should never be equated with proof that capitalism in inherently prone to crisis and cannot be reformed. It is the form of crises, e.g. contradiction between exchange and use value, which demonstrate the systematic nature of crises and not the actual cause of the crisis. Without the form of crisis the cause would have nowhere to go. Just as a virus is useless without a bodily form to infect.

So you could easily say that a rising rate of profit is the cause of a crisis, just as a falling rate of profit is the cause of a crisis. There are many causes, but this is due to the form that capitalism takes.

The question then arises is the falling rate of profit a form or a cause? And can it be both? This is where I think Harvey is trying to go beyond cause and form.

FORM IS MORE IMPORTANT THAN CAUSE!

And BTW Boffy is wrong to say theories of surplus value says nothing about rate of profit, or surplus value of relative increase of constant capital to variable. And I would contend that theories of surplus value isn’t about explaining all the causes of crises but is a long expanded argument to critique the denial of crises by bourgeois economists. In other words you can’t read theories of surplus value and come away with the impression that crises are caused by a million and one things, because if you do that you have totally missed the point in my opinion.

My two pennies worth. It is a mistake to privilege the TROPF in any crisis theory – but it should not be dismissed either. The reason that Marx in Capital III – not compiled and edited by him – discusses the ‘law’ first and then the counter tendencies is not because the former necessarily dominates the latter but because the falling rate of profit is more fundamental as it’s a consequence of the Labour Theory of Value, whereas the counter influences are varied and temporal. Hence the net result is undefined as it’s an empirical question that must account for not only the TROPF but also the particular characteristics of the period that cannot be established solely by theory. The rate of profit is pressurised downwards during medium to long periods of growth where the dominant form of relative surplus value is via accumulation in the means of production, and even during periods such periods the TROPF says nothing about the weight of influence of forces pushing the rate of profit upwards. In other periods it is blatantly obvious that the rate of profit is rising.

Marx referred to the TROPF as the single most important, and determining, law governing capital. That sounds to me like Marx does confer a bit of privilege on the law, and not just for its role in crises, but also in its functioning during the short-term cycles of capital expansion / contraction, and the long term, secular trends of capitalism (not to be confused with the, IMO, fundamentally mistaken and non-Marxist “long wave” theories).

As for volume 3 not being compiled and edited by him– well neither was volume 2. And the Grundrisse, the other Economic Manuscripts 1857-1864, TSV, and the list goes on and on, including The German Ideology, doesn’t it? So the question isn’t if the editing is Marx’s. The question is– is the analysis accurate?

I do agree with Graham, that the specific applicability, or “expression” of the law, requires empirical analysis and verification, and certainly Michael Roberts and others has provided just that analysis and verification.

Boffy is right we are in a 19th century boom. Food banks and beggars everywhere people committing suicide for being struck off dolemoney…capitalism can’t be in a downward spiral…that would imply profit rates are falling. It relocated to China as to give work to the Chinese instead of drugging em like in 19th century…

What would be really great would be for Boffy to give use some empirical evidence of the much heralded long-wave uptick that began, according to him, in 1999. Boffy argues that 1974-1999 represented a long-wave downturn, so if these things come in 25 year cycles, we’re entering what? the 16th year of the uptick? Some uptick, huh?

So it would be really great if Boffy would examine the data from, oh let’s say 1985-1999– that stuff about the rate of increases in say industrial output, volume and value, globally; that stuff about increases in world trade, volume and value, and compare that to the same indexes for the “uptick period” of 1999-2013, and point out to us what exactly constitutes the long wave and the upturn of this so-called “long wave upturn.”

The problem here is that profits can go down for various reasons (which are related to the LTV – which is a form and not a cause), for example increase in price of raw materials, and have nothing to do with the law itself, if by the law you believe increasing constant capital in relation to variable.

So the question is, is the fall in profit a form and not a cause? And if it is a form then that does lead to catastrophic notions, and when you go down that road I believe you are danger of internal inconsistencies. Though if we accept the theory I think we can discuss it in relation to presenting capitalism with barriers.

Profits can decline for any number of reasons; however a law governing an economy generating profits does not have a number of reasons, at least not for Marx. For Marx, the law is established as a law by the very same organization, force, relation that establishes capitalism as capitalism– the need to valorize capital, that is to say, to increase the relative proportion of surplus value aggrandized in the production process. The law of the tendency of the rate of profit to fall is determined by capital’s need to amplify the productivity of labor; by reducing necessary labor; by expelling labor power relative to the non-value creating components.

For Marx there is no question, and very little discussion, of the FROP as a form, but as the result of the social relation of production.

“For Marx there is no question, and very little discussion, of the FROP as a form, but as the result of the social relation of production.”

If the FROP is a result of social relations then it should be described as a form, along with the contradiction between exchange value and use value, money as means of payment etc etc. So one form among many.

“The law of the tendency of the rate of profit to fall is determined by capital’s need to amplify the productivity of labor”

So is a phenomenon of competition?

“Profits can decline for any number of reasons; however a law governing an economy generating profits does not have a number of reasons, at least not for Marx.”

This is where you go awry I think, the rate of profit can go down because price of raw materials goes up and therefore relatively less to expend on Labour. Less Labour is absorbed. So this is directly linked to the relation between constant and variable capital and linked to the LTV but not related to the TRPTF. So you should stop putting words into Marx’s mouth.

The last point is the nature of the TRPTF, clearly the nature of the law is cyclical, the profit goes down creating certain conditions, which become the means to resolve the problem, profits once again are restored. So when you say the law is related to the productivity of Labour you are correct but for the wrong reason. If the law was determined by the productivity of labour it wouldn’t be cyclical, or to put another way there is more going on here than simply the productivity of labour.

“If the law was determined by the productivity of labour it wouldn’t be cyclical, or to put another way there is more going on here than simply the productivity of labour.”

Yes, which is why I do believe in long waves where the rise in the productivity in labour can have the expected impact on profitability – from a Marxist perspective. Of course profits do swing over the cycle but I don’t think the productivity of labour is the main reason. If profits fall today you would struggle to put it down to a rise in the productivity of labour.

“The law of the tendency of the rate of profit to fall is determined by capital’s need to amplify the productivity of labor”

So is a phenomenon of competition?

No, competition is the arena where the law is expressed, gets worked out, materializes– however you want to call it. Competition does not CREATE the law. The need for expanding value, for increased valorization is the pro-genitor of the law which acts upon all capital through the mechanisms of exchange, the market, through competition

“This is where you go awry I think, the rate of profit can go down because price of raw materials goes up and therefore relatively less to expend on Labour. Less Labour is absorbed. So this is directly linked to the relation between constant and variable capital and linked to the LTV but not related to the TRPTF. So you should stop putting words into Marx’s mouth.”

The LAW is different than an event or an incident. For Marx the reason why the law is a law is that it is rooted in the very basis of capital; in its “metabolic” need. The LAW to the tendency of the rate of profit to fall AS OPPOSED to any incident where profit falls, is, and is explicitly according to Marx, a result of increasing productivity of labor; of the need to reduce the necessary labor-time; the time required for the laborers to reproduce the value equivalent to their own wages. That is precisely what the productivity of labor is in Marx’s analysis.

Marx does not describe the law as being operational only under certain conditions, like scarcity of raw materials, or increased demand. The law is operative under all conditions and there are also counteracting tendencies which are generated by the operation of the law– thus it has INTERNAL CONTRADICTIONS. Your description is your description, not Marx’s description of the law. I put no words in Marx’s mouth, but it does appear you didn’t read the words that came from Marx’s pen.

My point about saying profits can go down for other reasons was to make the point that the empirical evidence cannot be taken at face value, it must factor out ‘events’. I am not aware that it does.

(So it was said in relation to your comment in quotes below:

“I do agree with Graham, that the specific applicability, or “expression” of the law, requires empirical analysis and verification, and certainly Michael Roberts and others has provided just that analysis and verification.”

So I am not sure they have provided that much in actuality, in relation to the law that is. Obviously their work is important in others ways.)

Which brings me neatly to Grahams point about long waves. In some ways I have the same problem with the long wave theory and the TRPTF, in that it seems to fundamentally require that history be abstracted from the picture. So the collapse of Communism, Deng’s policies in China etc, the political, cultural battles are all irrelevant and all that is left is pure economic theory. It can be a mistake to include non economic factors in economic theory but I am not convinced that can be said in these cases. Which then makes me think the falling rate of profit is not a law, but more of a tendency. And maybe not even that.

“In some ways I have the same problem with the long wave theory and the TRPTF, in that it seems to fundamentally require that history be abstracted from the picture. So the collapse of Communism, Deng’s policies in China etc, the political, cultural battles are all irrelevant and all that is left is pure economic theory.”

On my thinking of long waves, they DO take into account exogenous factors such as the collapse of communism and I see the early 1990s as a turning point for global capitalism and the beginning of a ‘long upward wave’ up to 2007. Basically Mandel on long waves.

“On my thinking of long waves, they DO take into account exogenous factors such as the collapse of communism”

That appears strange to me, a long wave theory, where periods can be more than roughly defined and where the next upturn or downturn can be predicted but also that all exogenous factors are taken into account. If long wave is to hold in these circumstances then all you can say is that the exogenous factors appear to have no affect and could be abstracted!

I’ve set out elsewhere the interaction between exogenous and endogenous factors in the long wave. This was the central aspect of the discussion between Trotsky and Kondratiev over the Long Wave. Kondratiev explains that many of the things that appear to be exogenous factors, such as the opening up of new markets and territories etc. are not some random event, but are themselves driven by the material factors conditioned by the long wave cycle.

Trotsky, in “The Curve of Capitalist development” himself sets out the correlation of these various political events of wars and revolutions and so on with the conjunctural shifts of the long wave. I think Trotsky was probably closer to Kondratiev than his writing suggests. This debate was at the height of the struggles between the Left Opposition and the Stalinists, and Kondratiev was an S-R.

I disagree with the dating of the long wave upswing from the early 1990’s, as i’ve set out in discussions with Bill in the past. Firstly, it doesn’t fit with the usual length of the cycle, but additionally I have given lots of data elsewhere over the last few years setting out the extent to which the upswing in trade is most notable from around 1999, that there was a huge increase in global output after 1999, compared to the previous period, that global commodity prices, including the price of gold, which is a typical manifestation of the low point of the cycle being reached, all bottomed in 1999, and was followed by a massive spike in primary product prices after 1999, including gold, which is again typical of the Spring phase of the long wave cycle.

Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994. Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion. But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007. (Source: WTO Thomson Datastream)

In other words, where during the long wave downturn between 1980-90 trade rose by just 50% in ten years, in just five years during the long boom between 2002 and 2007, it more than doubled! That rise is also significantly more than the doubling of trade in the 6 years between 1994 and 2000. Put another way in the 20 years of downturn between 1980 and 2000, global trade trebled, but in just 5 years between 2002 and 2007, it rose by 233%!

In the first decade of this century global GDP also doubled, as did fixed capital formation. As a measure of what this meant in terms of the rise in productivity and the production of use values, it is represented by the remarkable fact that of all the goods and services produced in Man’s entire history on the planet, 25% were produced in the first decade of this century.

The same period has seen an unprecedented growth of capital in its true measure as specified by Marx, the growth of the working class. Whilst the global working class has doubled in the 30 years since 1980, it grew by a third just in the first ten years of this century, alongside the massive rise in productivity. The global working class is now for the first time the largest class on the planet.

Along with that has gone the huge rise in the living standards of literally hundreds of millions of workers across the globe, who have been rescued from the idiocy of rural life. Millions of workers in China were lifted out of poverty, and now that process has moved on to Africa which is now the fastest growing continent on the planet with seven of the ten fastest growing economies located there.

Those economies have been growing on average by around 10% p.a., many never went into recession even after 2008. China’s annual growth is lower at 7% than it was several years ago, when it was achieving growth of 10%, but several years of 10% growth means that its economy is twice as big as it was just 6 years ago. In absolute terms, 7% growth in China is as much as 14% growth ten years ago!

Such is the power of the long wave on the expansion of global capital, since 1999, compared to the stagnation of the long wave downswing.

“Between 1980 and 1990 global trade rose from around $4,000 billion to around $6,000 billion, remaining flat until around 1994. Between 1994 and 2000 it rose from around $6,000 billion to $12,000 billion. But, the sharpest rise has most notably been since 2002 where it rose from around $12,000 billion to around $28,000 billion by 2007. (Source: WTO Thomson Datastream)

In other words, where during the long wave downturn between 1980-90 trade rose by just 50% in ten years, in just five years during the long boom between 2002 and 2007, it more than doubled! That rise is also significantly more than the doubling of trade in the 6 years between 1994 and 2000. Put another way in the 20 years of downturn between 1980 and 2000, global trade trebled, but in just 5 years between 2002 and 2007, it rose by 233%!”

Fun with numbers? Long waves? You think you might want to include the periods after 1999 and 2007 to get a real representation of the “long wave”? Not our Sherlock.

Here’s a different set derived from the IMF World Economic Outlook Databases:

Constant Dollar Growth in World GDP: (all figures approximate, derived from database, but calculations (and any error therein are mine)

1986-2000, 157%
2000-2013, 159%

Average annual investment expressed as %GDP:

1986-2000, 23.8%
2000-2013, 23.6%

Total growth in world trade volumes

1986-2000, 280%
2000-2013, 182%

I think I did the math right, but you can look at the aggregate data on World Economic Outlook 2014 page of the IMF’s website and correct my errors.

Anyway, this doesn’t feel like a long wave to me. Feel like a long wave to any other surfer out there?

I bet, however, that our genial host, Michael, has already looked at this data, or something akin to it.

“That appears strange to me, a long wave theory, where periods can be more than roughly defined and where the next upturn or downturn can be predicted but also that all exogenous factors are taken into account. If long wave is to hold in these circumstances then all you can say is that the exogenous factors appear to have no affect and could be abstracted!”

No what it is saying is that what appear a exogenous factors are in fact conditioned by endogenous factors. So, as Marx and Engels point out, new innovations do not arise randomly. It is not a coincidence, as marx points out, that there are long periods, when capital expands merely quantitatively, without any rise in the OCC, and there are others when a lot of technical change happens, and when productivity rises rapidly.

It is at that phase of the cycle when labour reserves have been largely used up, and when, therefore, wages rise squeezing profits, that capital seeks to replace labour with machines, as Marx sets out in “Value, price and profit”. But, the development of new technology does not happen straight away, it takes time to develop, and to introduce on a large enough scale to replace labour, and thereby depress wages.

As Marx sets out in the above, agricultural wages rose steadily between 1849-59, a period of long wave boom like today that was similarly punctuated by crises of overproduction due to overaccumulation spurred by high and rising profits. It took all of that period before capital had produced the machines and new techniques that could be introduced on a large enough scale to replace labour and depress wages.

Its those factors that lead Marx and Engels to set out the way wages rise and fall in accordance with its demand as determined by these phases of the cycle. The defeats of workers that occur during these phases – the same was true in the 1920’s and 30’s, as well as in the 1980’s and 90’s, which were corresponding periods of downturn are then not simply exogenous political events, but flow from the endogenous economic conditions of the long wave cycle, just as in the long wave boom from 1890-1914, workers experienced their greatest period of growth of their TU, Co-operative and political organisation, and a similar pattern could be seen in the long wave boom after WWII. A similar pattern can be seen with the growth of workers organisations in the more dynamic areas of the global economy today, despite the obstacles imposed in China by Stalinist rule. It can be seen in the Arab Spring, and in the growth of social democracy in Latin America.

As Kondratiev sets out, the opening up of new territories the development of new agricultural land, mines etc. was not an accident but spurred by rising prices caused by the onset of a new long wave boom. Its why the onset of the new long wave boom after 1999, caused the price of copper to quadruple, the price of all other primary products to rise massively, as the sharp rise in global trade, GDP and fixed capital formation I have detailed elsewhere based on WTO data, caused demand for these products to rapidly oustrip the ability to icnrease supply. Its why we have seen in the following period, as in every other previous cycle, a large increase in the opening up of new mines in central Asia, Africa etc., as well as the introduction of new technologies to extract additional minerals.

“Of course profits do swing over the cycle but I don’t think the productivity of labour is the main reason. If profits fall today you would struggle to put it down to a rise in the productivity of labour.”

Its important to distinguish between the annual rate of profit, and the rate of profit in the sense used in Chapters 13,14 and 15, which is really the profit margin. The relation is set out in Chapter 4 on the Effect of the Rate of Turnover, which is a direct consequence of the same changes in social productivity that lie behind the law of falling profit margins.

Its one of those contradictions that Marx is discussing in Chapter 15. The catastrophists are like the proponents of immiseration I talked about earlier. As Rosdolsky showed of all the thousands of references to wages, the proponents of immiseration picked out the one that was potentially ambiguous about falling real wages.

In a similar way, the proponents of the law of falling profits as the cause of crises ignore all of the hundreds of references to crises that do not mention the law of falling profits, all the references that relate to the cause being the expansion of production beyond the capacity of the market to accommodate it, and realise the surplus value that Marx says has during this period not fallen, but “expanded to immense proportions”, all those references to overproduction arising to the development of disproportion due to differing levels of productivity in different industries and so on, and pick on one phrase out of Chapter 15, that they misinterpret, and divorce completely from what marx and Engels then say in the rest of that Chapter, in explaining it!

Their position is completely untenable. If we look at marx’s quote, this is what he says, after setting out the various contradictions that arise that lead to an increase in the mass of capital without a rise in the OCC, for example, which causes the rate of profit to rise.

“On the other hand, the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process.”

So, what is it that is the goad of capitalist production that Marx is discussing here, and which leads to an over expansion and over production of capital? is it a falling rate of profit, as the catastrophists claim? No it is a high and rising rate of profit!!! It is high and rising levels of profit that encourage existing capitals to expand so as to capture more of these large profits. It is these high and rising rates and masses of profit that cause new smaller capitals to set up in business! And, it is this relentless expansion of capital, which leads to that “immense” level of surplus value being produced, which Marx then says a page or so later cannot be realised, not because the rate of profit (a feature of production) is falling, but because the market does not expand without constraint in the way that production does.

As Marx puts it, production/supply is determined by value, whereas consumption/demand is determined by use value, and the laws governing the two are completely different.

As Marx describes in Chapter 4, and a further explanation is given in Chapter 18 examining the role of the Rate of Turnover on merchant Capital, this vast increase in the mass of surplus value, is a consequence of increasing social productivity that raises the rate of turnover, and the annual rate of profit. But, the same forces cause the profit margin on each commodity unit to fall, which when combined with sharply rising and fluctuating prices of materials and labour creates the potential for short run crises of overproduction.

The “It” he is talking about is not the falling rate of profit, and certainly not the falling annual rate of profit, but the opposite, the high rate of annual profit, which acts as the goad to accumulation, and thereby to over production, speculation and crises.

It is that, which he then goes on to discuss in the rest of Chapter 15. In Chapter 6 he sets out how this very process of high profits causes material prices to spike causing such disruptions. Now in Chapter 15, he sets out how this very same cause of high annual rates of profit causes wages to rise, and the rate of surplus value to fall, as the boom causes the demand for labour to rise.

But, as Marx says, in Chapter 15, a sharp fall in the rate of profit caused by a crisis of overproduction, which is itself caused by a high rate of profit, is not at all the same as a fall in the rate of profit caused by the law of falling profits! Its a sign of desperation by the catastrophists that they snatch at any fall in the rate of profit whatever its cause to try to bolster their argument, even if that fall in the rate of profit is caused by the very crisis they want to claim is caused by the law of falling profits!

Boffy’s “Speidel” (Twist-O-Flex) “Marxism” is right out of Orwell’s Newspeak where high is low, falling is climbing and most importantly, ignorance is strength. Sure thing.

Stripping the faux erudition from Boffy’s gibberish, we get– it’s a high rate of profit that leads to…….a low rate of profit

Of course not a single argument from “our” side has anything to do with a high or low rate of profit, and all arguments from “our” side have to do with the DECLINE, the FALL in the rate of profit as producing in Marx’s words, overproduction, speculation, crises.

Marx specifies that it is the operation of the law– the law of the tendency of the rate of profit to decline that forces capital to attempt the resolution of its INTERNAL CONTRADICTIONS through serious and recurrent explosions.

Short version. Boffy is deliberately distorting Marx’s words, and you can’t get more desperate than that.

What has to be taken into account if that the title of Chapter 15 is “Exposition of Internal Contradictions of The Law”. If you read it carefully, that is exactly what it is about. It is most certainly NOT setting out that the Law itself leads to crises, however much those who wish to seize upon, Marx’s comment near the start of the chapter might want to turn it into that.

The basis of crises of overproduction, as Marx sets out in that Chapter, is not the long term tendency for the rate of profit to fall as a consequence of rising social productivity. The basis of those crises described, is a rising rate of profit that provokes over expansion, and a consequent overproduction of capital.

Moreover, as I have set out in my book, the law as set out in Chapter 13 is really a Law of Falling Profit Margins. As Engels spells out in that Chapter, the Rate of Profit that is falling and described in that Chapter is s/C, which here is taken as being the equivalent of p/k, the profit margin, and these two measures are only ever the same where the rate of turnover of capital is equal to 1, which Engels points out is never the case.

But, as Marx sets out in Capital II, in his very lengthy discussion of the rate of turnover and annual rate of surplus value, you cannot separate out the rise in social productivity, which is he says what causes the tendency for the rate of profit to fall, from the rise in the rate of turnover of capital, because the latter is also the consequence of that same rise in social productivity. The rise in the annual rate of profit due to the rise in the rate of turnover, is not, therefore, simply a countervailing force, in the way that the others are, which is why it is not included as a countervailing force in Chapter 14. The countervailing forces set out in Chapter 14, are countervailing forces to a falling profit margin, whereas the rise in the rate of turnover is a direct force causing the annual rate of profit itself to rise.

But, you are right that the Law itself has an important function. It is what determines the allocation of capital from low profit areas to high profit areas, for example. Moreover, whilst it does not explain crises of overproduction, it is a partial explanation of periods of stagnation. Overproduction is caused by high rates of profit, and similarly stagnation arises due to low rates of profit, and a shortage of new areas of production into which capital can be invested, when the rate of profit is rising.

But stagnation is not overproduction. Its why marx distinguishes clearly between these different phases of the cycle. Overproduction arises when too much has been invested, stagnation when not enough is being invested.

What mind-numbing nonsense from Boffy. Marx doesn’t say it’s a low or high rate of profit that is the determining factor. He argues that it is the tendency to decline in the rate of profit that is the compressed expression of the conflict between means and relations of production, which identifies the limits to capital, and the historical necessity for its overthrow.

All Boffy is saying is that a higher rate of profit precedes a lower rate of profit. No shit, Sherlock. You should have been a detective.

Marx, however, has a bit more game than Boffy or Sherlock, and that is in his recognition that the determinants of capitalist production become its negation; the signature becomes the sign of its obsolescence.

Yes, Marx is exposing the “internal contradictions of the law”– wow, that sounds really limiting, right? Sure, as long as you ignore the fact that ALL of Marx’s critique of capital is exposing the INTERNAL CONTRADICTIONS of capital; as long as you conveniently discard recognition of Marx’s exploration of the tendencies IMMANENT to capital to identify its movements and are the laws of its movement.

Marx certainly does in this chapter of volume 3 identify the FROP based on rising productivity with overproduction and crises. He says so explicitly, and he focuses on that particularly in his discussion of the “over-accumulation of capital”– which is nothing other than the overproduction of the means of production and means of subsistence AS CAPITAL, as a means for exploiting labor power at a sufficient level to maintain rates of valorization– rates of profit. He writes that down. He can’t force anyone to read it, remember it, or pay attention to it. But it’s there.

Here’s a news flash; all the contradictions of capital, as a system, are internal contradictions. And the conditions that create rising profits create declining profit rates. And overproduction, as Marx makes clear, is ALWAYS the overproduction of capital, since capital is a system of expanding value production.

Boffy says:
“What has to be taken into account if that the title of Chapter 15 is “Exposition of Internal Contradictions of The Law”. If you read it carefully, that is exactly what it is about. It is most certainly NOT setting out that the Law itself leads to crises, however much those who wish to seize upon, Marx’s comment near the start of the chapter might want to turn it into that.”

Which particular comment is that? Would it be this one for example:

“On the other hand, the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process. It breeds over-production, speculation, crises, and surplus-capital alongside surplus-population.”

According to Boffy Marx is not setting out that the Law itself leads to crisis when Marx has himself just written:

“It breeds over-production, speculation, crises”.

I don’t know about seizing upon this “comment” when it is an integral part of the text and when Marx goes on to explain just how it does cause crisis .

I must agree with sartesian that Boffy spouts such mind numbing nonsense.

There is also another fairly obvious problem with the idea that crises of overproduction are the result of the Law of Falling Profits. Capitalist production began in the 15th century. The Law of Falling Profits explains the mechanism by which capital having infiltrated the most profitable areas of commodity production, eventually reaches a point whereby the further investment of capital must take place in some other sphere, which is now more profitable. It is the same mechanism that tends towards the creation of a general rate of profit.

So, the Law of The Tendency for the rate of Profit To Fall has operated for 500 years. Indeed, Marx describes the fact that earlier Political Economists had been concerned about this very law in the 18th century.

Yet, according to Marx and Engels, the first capitalist crisis, the first crisis of overproduction does not arise until 1825. marx describes the fact that there had indeed been crises previously to that, but these crises had all been purely financial crises. They were crises that arose due to some particular bank printing more notes than it could cover with its own capital, or else were crises like the South Sea Bubble caused by financial speculation, fraud and swindling.

Indeed, Marx in analysing Ricardo’s inability to understand real capitalist crises of overproduction, defends him on the basis that Ricardo had only ever seen such purely financial crises.

So, we have two facts here that contradict the idea that crises are the consequence of the Law of Falling profits. Firstly, we have the declaration by Marx that there have been lots of crises that were not due either to the law of falling profits, or overproduction, but were purely financial crises. Secondly, we have the fact that the Law of Falling profits operated for five hundred years WITHOUT there being a crisis of overproduction.

In fact, even during the 70 plus years of the Industrial Revolution from around 1750 there was no such crisis of overproduction despite the continued operation of the law of falling profits.

The first capitalist crisis arises as marx and Engels describe in 1825, and its fairly clear from their writings what the cause of that crisis was, and why it happened then rather than sooner. It was the impact of the advent of large scale mechanisation, and the introduction of steam power that vastly increased productivity, and threw huge volumes of use values on to the market.

“capitalist production has been everywhere completely established, society reduced to the modern classes of landowners, capitalists (industrialists and merchants) and workers – all intermediate stages, however, having been got rid of. This does not exist even in England and never will exist – we shall not let it get so far as that.”

I am sure I read in theories of Surplus Value that Marx links the theory of crisis with large scale production. What Engels calls modern capitalism. So I don’t think your point is relevant. As Engels says:

“But the principal cause is undoubtedly the totally changed state of the Weltmarkt. [10] Since 1870, Germany and especially America have become England’s rivals in modern industry, while most other European countries have so far developed their own manufactures as to cease to be dependent on England. The consequence has been the spreading of the process of over-production over a far larger area than when it was mainly confined to England, and has taken – up to now – a chronic instead of an acute character.”

What Engels is says is that the determination of market prices on the basis of prices of prices of production would only assume a near pure form under those conditions, not that the law of the tendency for the rate of profit to fall does not operate other than in those conditions.

In fact, it would be crazy for him to have claimed that, because the whole basis of the development of a General Rate of profit set out in Chapter 9 is predicated on the law of the tendency for the rate of profit to fall. The logical and historical development of a general rate of profit set out by Marx and Engels in that Chapter, depends upon capital entering production first in those areas where the rate of profit to be obtained is highest.

According to Marx this was usually in forms of stock herding. As Marx and Engels point out, capitalist production began in the 15th century. That is why Engels points out that from that moment on, despite capitalist production only being a small part of total production, commodities no longer exchange at their values. Capital continues to infiltrate those areas of production where higher rates of profit can be obtained. As a consequence, the supply of these commodities increases beyond what it would have done under petty commodity production. The market prices of these commodities thereby falls, as a result of this expanded supply, and falls below the exchange value of the commodity.

As Marx points out, these commodities form the inputs of other producers. Even if these other producers are themselves peasant producers, therefore, the price of their final output is now determined not by its exchange value, but by the value they add to the commodity, on top of the market price of the inputs they use. As a result their output is sold not at its exchange value, but at this modified value. As their output forms the input of other producers, this spreads across all market prices, so that no market prices any longer are equal to exchange values.

Its on that basis that Engels says that commodities stopped exchanging at their values from this point in the 15th century onwards. But, as Marx and Engels then describe in Chapter 12, it is precisely the law of the tendency for the rate of profit to fall that leads to capital moving into other areas of production. What determined that profits were higher in this sphere of production than others was that the organic composition of capital was lower.

When market prices fall to a level where the realised profits are now lower than in some other industry with a low organic composition of capital, capital begins to infiltrate that industry rather than continuing to accumulate in stock herding. By this means capital is drive to infiltrate one industry after another, in accordance with which has the lower organic composition of capital, and which thereby in accordance with the law of the tendency for the rate of profit to fall, offers the potential for the highest rates of profit.

I am not sure how to reply to this, other than to say Marx put it like this:

It is the mass production of mass producers who are *confined* within the “bounds of the necessary means of subsistence” on the one hand and the “barrier set up by the capitalists’ profit” which forms the basis of *modern* over-production.

And this over production exists within the form(s) that capitalism takes, exchange value/use value contradiction, money as means of payment etc. As Marx says:

“In world market crises, all the contradictions of bourgeois production erupt collectively; in particular crises (particular in their content and in extent) the eruptions are only sporadical, isolated and one-sided.”

Engels also made this point, which I think is sort of related to the argument (apologies for the cut and paste):

“The ‘Züchtung von Millionären’, [1] as Bismarck puts it, seems indeed to go on in your country with giant steps. Such profits as your official statistics show are unheard-of nowadays in English, French or German textile manufactories. Ten, 15, at the outside 20 per cent, average profits, and 25–30 per cent in very very exceptional years of prosperity, are considered good. It was only in the childhood of modern industry that establishments with the very latest and best machinery, producing their goods with considerably less labour than was at the time socially necessary, were able to secure such rates of profit. At present, such profits are made only on lucky speculative undertakings with new inventions, that is to say on one undertaking out of a hundred, the rest mostly being dead failures.

The only country where similar, or approximately similar profits are nowadays possible in staple industries, is the United States, America. There the protective tariff after the civil war, and now the McKinley tariff, have had similar results, and the profits must be, and are, enormous. The fact that this state of things depends entirely on tariff legislation, which may be altered from one day to another, is sufficient to prevent any large investment of foreign capital (large in proportion to the quantity of domestic capital invested) in these industries, and thus to keep out the principal source of competition and lowering of profits.”

Its not clear what the point is of your latest post. It simply describes the conditions of overproduction on the basis of the contradictions I’ve set out in my book and elsewhere. In fact it seems to focus mainly on the contradiction between the production and realisation of surplus value.

But, no one doubts that capitalism suffers such crises. The point is whether they are caused by the law of falling profits. In fact, as I’ve set out elsewhere, the quote from Marx at the start of Chapter 15, states clearly it is a high rate of profit not a low or falling rate of profit that acts as the goad to accumulation, and thereby to overaccumulation, speculation and crises. It is as marx sets out clearly there a falling rate of profit which on the contrary results in a cessation of the creation of new capitals, and thereby reduces the potential for over accumulation and crisis.

In fact, elsewhere, Marx sets out that the Law of Falling profits, rather than being the cause of crises of overproduction is the means by which the actual cause of those crises is resolved. It is high rates of profit that cause an expansion of production, which leads to a rise in wages, and material prices, which Marx describes in Chapter 6 and 15, causes the crisis of overproduction. In order to overcome the high level of wages, and material prices, capital then engages in attempts to introduce various forms of innovation to replace labour, and reduce the costs of constant capital.

It is the introduction of these innovations, which then cause social productivity to rise, and the rate of profit to fall. But, this same process causes the value of constant capital to fall considerably, as a result of the rise in productivity. The innovations also create entire new industries with high rates of profit and low organic compositions of capital. By this means the law of falling profits leads to the introduction of these means that raise the level of productivity, devalue existing capital, increase the rate of surplus value, and the rate of turnover of capital, overcoming all of those constraints that previously led to crises of overproduction and to stagnation, and create the conditions required for the new boom, and for the rate of profit to rise!

Edgar says:’The error that H A Cox makes here is to believe this inevitable collapse is purely a technical economic question.”

Actually, all I am saying is what Grossman tried to say in his book. “Because I deliberately confine myself to describing only the economic presuppositions of the breakdown of capitalism in this study, let me dispel any suspicion of ‘pure economism’ from the start. It is unnecessary to waste paper over the connection between economics and politics; that there is a connection is obvious. However, while Marxists have written extensively on the political revolution, they have neglected to deal theoretically with the economic aspect of the question and have failed to appreciate the true content of Marx’s theory of breakdown. My sole concern here is to fill in this gap in the Marxist tradition.’
While, in his time there was much talk about the subjective factor of socialist revolution-unions, workers parties, colonial revolution, fascism, etc., little was being said about the objective determinants of socialist revolution. While Russia and Cuba have shown that in an indiiduual country capitalism can be overthrown, it is doubtful that ‘Capitalism’ can be overthrown without a major breakdown of capitalist accumulation on a world scale much like that which took place from 1914-19. It is true that Engels and Marx were wrong, not about the objectve situation that was approaching, but the subjective factor. If you could talk to Marx and Engels now and tell them what happened between 1914-1945: two barbaric wars, and a devastating economic depression that disrupted world economic development on a massive scale, I suspect they would find it incredible that Capitalism was still around. It was the massive disaccumulation of war preparations before WWII and the massive destruction of physical capital and infrastructure in Europe and Japan that saved capitalism. The prosperity that grew out of those ashes has not only demoralized and disoriented the revolutionary movement of the working class, but has also caused ambivalence within the marxist movement as to what Marx put forth in Capital. Few would openly argue as did Lenin that Capitalism is headed toward a breakdown and even fewer have any connection to the class that Marx thought could end capitalism. So, if Marx is wrong that capitalism reaches a limit where it becomes a fetter on the development of the productive forces, then this is all just idle chatter on our part and a pretty scary omen for humanity’s furure.
So not only is Boffy silly to think that socialism will develop out of a fully developed capitalism; so are those who think that capitalism can be made benign by reforms. And recurrent or random economic crises will not allow the development of a revolutionary movement strong enough to overthrow capitalism in the developed countries. It will take a major shakeup in the confidence of the ruling class through severe economic decline in world accumulation that will make socialism a POSSIBIlITY.
Finally, there is nothing technical about saying capitalism is headed toward a breakdown. That is a social process that could happen if capital continues to develop the productivity of labor and that would mean an epoch of little or no incentive to further develop the means of production: along the way capital will be incentivized to create debt bubbles, attack the working class, and go to war. In their way those are an expression of capital becoming a fetter on the productive forces.

Capitalism’s political economic base is now incapable of creating a political-economic superstructure into which it can further expand. A system that cannot change is a dead system. A mode of production that has run out of space has run out of time. Capitalism is already dead. The thirty-year Monetarist Ponzi Scheme which over came the stangation and sclerosis of the 70s did so at the cost of total and irrevocable financial bankruptcy in the imperialist centres themselves. Beyond US-sponsored globalisation capitalism cannot go. Only world proletarian revolution can take humanity forward now. Capitalism offer only the rewinding of the film. The decsent into barbarism. A New Dark Ages. The violence that got us here will be as nothing compared to the violence of the return journey. It is, as it was predicted it would be, a straight choice between socialism or barbarism. For the bourgeoisie war as a policy instrument has ended. It is now a mode of existence.

@ Boffy 12/19, 2014 14:40
Hi all, especially Boffy. Though very interesting this discussion is getting also very complicated to follow. I wish someone cleaned it up in a nice blog. Maybe hour host Robert could do this.
Specific on the problem of intellectual property: I don’t think the notion of complex labor will resolve this as even this complex labor is coupled to a finite number of results. The brainsurgeon operates a specific time on one brain. However, the labor that has gone into the patents on the scanner he uses is another matter.

There is one positive in Boffy. Whereas almost everybody is experiencing some type of economic downturn Boffy is experiencing a Long Wave upturn. A case of too much Americanisation or a clinical case? After all capitalism creates false consciousness and pretends labour power is free not slavery. .. A pseudo left defender of the US order in its twilight years is our Don Quixote or was it Sancho to Osborne’s boom?

I don’t think I can make it any more succinct than Michael did in the final sentences of his essay– is the root of capitalism’s limits; and its oscillation between contraction and expansion and into and out of crisis, located in its specific organization of production, or as Marx put it the “condition of labor” or are those elements located somewhere else?

Regarding Boffy’s assertions… the issue is does this from Marx
“On the other hand, however, in view of the fact that the rate at which the total capital is valorized, i.e. the rate of profit, is the spur to capitalist production (in the same way that valorization of capital is its sole purpose), a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the production process; it promotes overproduction, speculation, crisis…”

mean what Marx says it means, that IT– a FALL in the rate of profit, promotes overproduction etc. or does it mean what Boffy wants it to mean, that

“The “It” he is talking about is not the falling rate of profit, and certainly not the falling annual rate of profit, but the opposite, the high rate of annual profit, which acts as the goad to accumulation, and thereby to over production, speculation and crises.”

I think Marx knew better than Boffy what he meant and its only through deliberate distortion or willful ignorance that one can pretend Marx was arguing something else…

I’m limited as to time, and this discussion seems to be reaching a point of diminishing returns. But, just to deal with this particular point.

The brain surgeon DOES operate for a specific amount of hours on one brain, but that is the point. This is a specific amount of hours of concrete labour, NOT abstract labour. Marx in his example of complex labour in Volume I, refers to 1 day of some complex labour, being the equivalent of 6 days of some simple labour.

The brain surgeon may operate for say 5 hours, but in terms of abstract labour, i.e. in terms of the value of the product of this labour, it may be the equivalent of 100 hours. There is no objective means of determining this in advance, as Marx says, precisely because the actual relation, the multiple by which any complex labour stands to simple labour is only determined a posteriori in the market. It depends how consumers determine the value of the product of this labour as opposed to their valuation of the product of some other labour.

Ultimately, as Marx says, that is a subjective matter, a question not of value, but of use value, i.e. how much use value do they obtain from one form of concrete labour compared to another. As marx puts it production/supply is based on value, but demand is based on use value.

It is easily seen if the conditions of commodity fetishism are removed, and the conditions of simple commodity exchange are considered. If A is a blacksmith, and B is a jeweller, A may consider B’s labour to be complex. A may then be prepared to spend 5 hours creating a wrought iron sign for B’s shop, in return for B spending 1 hour producing a piece of jewellery in exchange. This comes down to the use value that A puts on the product of B’s labour and vice versa.

Yet, the value of A’s labour power may be no different than that of B. both may require the same amount of food, shelter, clothing and so on. It is just that B has acquired a skill that is in demand, or has a natural ability that is in demand. There is the difference, the value of the labour-power is objectively determined by the labour-time required for its production.

Boffy was arguing with myself at least five years ago that we are in a Long Wave boom so great that I only come across it in politicians newspeak. One could argue Buffy was ahead of the curve. A permanent boomist before Obama Osborne and Samaras talked about recovery, Grecovery ‘success story’. So if you think having the same line on capitalisms capabilities as the establishment is an ad hominem attack then I am guilty as charged…

technically, whatever it was, VN Gelis’ on Boffy and the long wave upturn does not constitute an ad hominem– “directed to the person; based on feeling, not reason”–attack.

FWIW, I think VN Gelis is wrong. Boffy is not a defender of US capitalism in particular, but rather an unreconstructed 2nd Internationalist, left breathless and enamored by the so-called amplification of the means of production by capital, so much so that he thinks that capitalism will be superseded by socialism in a sort of linear progression– that capitalism will morph itself into socialism, and the bourgeoisie will just wither away.

I don’t bother reading the ravings of trolls like Gelis and Artesian. Besides the fact that Gelis has been called out several times in the past for his politics – someone who has a website devoted entirely to justifying his support for Immigration Controls, and a grotesque distortion of the wirings of Marxists to justify it, should tell you everything you need to know. In one of his rants a few years ago, having declared that almost everything you can think of was under US control, including the whole of the EU, he then went on to confidently declare that by now not only the EU, but the US itself would have broken up into separate states!!!

My advice is, whenever you come across a post in their name, do what I do and simply scroll past it, and do the same when you find any of the sock puppets they use.

According to the catastrophists, there was a falling rate of profit – though some of them at least admit it was rising, but never reached the height it did in previous cycles – from the 1980’s onwards, and this was the cause of the 2008 financial crisis, and of the “greater recession”.

In fact, the rate of profit wasn’t falling during that period it was rising. If the rate of turnover is taken into account to derive the annual rate of profit, it rose to a higher than its previous peak.

However, if it had been falling, the catastrophists have something of a problem for their thesis. In four of the last five quarters, the US economy, has had growth of more than 3.5%. In 3 of those quarters, it has had growth of more than 4.5%. Yet, the US economy is one of the more sclerotic of the global economies, compared to say China, and is an economy in long term decline rather as was Britain at the end of the 19th century.

The US has achieved that despite the fact that the so called Sequester” took a large chunk of potential growth out of the economy, and despite the fact that the three year cyclical downturn kicked in on cue in the third quarter of 2014.

In fact, as I’ve set out elsewhere, the rate of profit, probably did start to turn down at the end of 2012, as the Summer phase of the long wave started. But, the catastrophists theory is proved wrong again, because instead of that actual start of the rate of profit falling causing a renewed crisis of overproduction, or stagnation (the two different phenomenon also being confused with each other by the catastrophists) the US economy appears to be accelerating!

A few weeks ago, the Philly fed survey came out with such a strong reading that many economists, including myself thought it must be a rogue figure. If it was correct it would suggest that US Q4 growth would be 6.5%. But, given the fact that US Q3 growth has today on its final reading been confirmed up by 5%, the Philly Fed figure looks not so roguish after all.

But, no doubt the caststrophists who seem to make up their theory as they go along, and explain each new set of data that confounds that predictions of global catastrophe and stagnation will be rusihing to provide their excuses as to why they have been shown to be wrong yet again. In fact, not just wrong, but wrong by a huge amount, given that Michael himself was telling us only a few months ago that US growth was only 1.7%!

Perhaps they might want to use their old excuse and claim that 5% is less than some quarterly growth figure some time in the past, or that its less than in China, or the fastest growing parts of Africa. But, then they might not want to do that, because that would just highlight the fact that if you are not obsessed with trying to only portray bad US data as the whole picture, there is a whole lotta growth going on in differnt parts of the global economy.

The fastest growth pace since 2003 Q3 in the US. I’m sure the catastrophists will provide us with an answer.

The great crisis of 2008 is an example of why long waves – or something stretching beyond business cycles – are useful. And there isn’t much point stopping at ‘what Marx said’ on this. Though the RoP fell in the year prior to the onset of crisis, it was from a rising and high point, quite different to the end of the postwar long boom. Not a crisis resulting from the TRPF but from global proportionality combined with a financial centre in the region of relatively lower growth and profitability (the OECD).

1. I am not a “catastrophist.” Capitalism will reproduce itself over and through turning the world into a pile of bones and ash. The catastrophe will be that of living beings on the planet; and not necessarily capitalists. Nothing in the fall in the rate of profit, in and of itself, means the final “end” of capitalism. At the same time there is no fall in the rate of profit that the bourgeoisie can afford to ignore, and does not propel them to taking countervailing actions– asset liquidation (leveraged buyouts, private equity, asset stripping, arson– financial or otherwise) and/or an attack on the living standards of the poor and the working class– i.e the attempt to drive the wage level below the value of labor, below its cost of reproduction.

2. Oh yeah, 3Qs of growth in the US and “everybody’s” convinced we have a “long wave boom.” That’s the thing about capitalism– short term memory loss. What do I mean? Just this– 7 years, yes 7 years after the previous peak in industrial output, US industry finally exceeded that level. You can look it up. Previous peak in US industrial output, November 2007. Exceeded November 2014. That’s your (fucking, pardon the language) long-wave upturn. What a (fucking, pardon the language) joke (bad). But go right on calling some catastrophists and whining when those you have mislabeled have the audacity, and veracity, to proclaim you as the pollyannas of permanent capitalism. Enough to gag a maggot, surely.

3. Meanwhile (motherfuckers, pardon the language), Japan is in recession; the EU can’t pull itself out of deflation; Brazil’s economic woes multiply; Russia– yeah right; India, South Africa– a regular capitalist boom town, that place; and world trade has slowed once again. That’s some (fucking, pardon the language) upturn you guys have claimed on behalf of capitalism.

4. It would be nice if Boffy or Graham actually analyzed, concretely, with numbers the change in the rate of profit rather than just claim it’s been constantly rising. Michael has tried to provide the data and the analysis. Kliman has also. I’ve done a bit of work in the field, but all we get from Boffy and the Boffettes is that the rate of profit has been rising without any back up data and analysis, other than the cheerleading about how capitalism “has pulled millions out of poverty.” Sure thing. Guess what? That doesn’t cut it.

5. So guess what? The US has certainly, not recovered, but taken advantage of the last 7 years to further knock the snot out of the working class and transfer wealth from the poorer to the richer, which BTW is exactly what it has done to sustain itself for the last 35 years. Call that a long term upturn if you want, but when Turkey, Slovenia, Greece, Italy, Japan, Brazil, Russia, China, India, South Africa, Italy, France, Germany, Portugal, Ireland, the UK, Mexico all remain mired in slow/no growth and contraction, and when US output has, years after the end of the recession, just now equals or exceeds the pre -recession output, I (motherfucker that I am, pardon the language) don’t see any evidence for any long wave upturn…. the pollyannaists to the contrary not withstanding.

You refer to industrial output. The US exceeded it’s pre-crisis GDP three years ago. China and India? 7-8% and 5-6% respectively this year.

Clearly Europe is the major drag on global growth and in terms of long waves I would date it from 1993 to 2007. So this is a different period, with a stagnant EZ and a mixed picture for emerging economies. One thing we haven’t got is a global crisis or stagnation of capitalism. IMF latest forecast for global GDP growth this year is 3.3%.

Yep, I pretty much think industrial output is the marker, the index to whether or not we’re in a long wave upturn or not. Kind of gets rid of the FIRE sectors which aren’t value producing. I know that’s assuming you think capital is about the production of value (of exchangeable value), and that you agree with Marx’s statement that, try as we might, we cannot fashion capital out of anything that is not means of production or means of subsistence. Big if, I know, particularly since only Boffy knows what Marx really meant when he wrote what he wrote.

But if you don’t like that only stodgy category of industrial production, I’ll go along with using the change in the volume of world trade. I suggest you Pollyanna-ists take a look at those rates of growth over the past 20 years in world trade– maybe you’ll notice that average annual rate of growth from 1993-2000 (which is supposedly part of the long-wave downturn) are significantly higher than the average rate of growth from 2000-2008; and 2008-2013?, please don’t make me laugh– 18% in 6 years, or about 2.8% per year is about half the 2000-2008 rate and much less than that rate for the “downturn period” of 1993-2000.

Sure thing, China’s GDP growth will be in the 7-8% range, but that’s a significant slowdown from previous rates.

What I love (not) about our Pollyanna-ists is how everything is always good for capitalism. So the price of copper goes up? The price of all metals soared? Oh that was good for capital because it was an index to real expansion as “supply” can’t keep up with demand.

Oil prices collapse due to massive overproduction (and overproduction is according to our Primo Pollyanna the “real crisis” of capital)? Oh that’s good for capital too, because you see oil is part of constant capital and thus the decline in its price will raise the rate of profit….for manufacturing; put more money in everybody’s pocket and blahblahblah.

But…..wait a minute. Aren’t metals an input to production, constant capital, and doesn’t the increase in prices mean mean more expense for capital, and a lower the rate of profit? No, no that only applies to oil. See, metals are part of the long wave upturn when the rate of profit is rising and therefore it doesn’t apply because… because I don’t want it to. Because I have to keep a smile on my face, a song in my heart, and a religious belief in the perfect expandibility of capitalism. And besides, indexes of metal prices– iron ore, steel, copper, aluminum etc. have declined considerably, and that’s good too.

Oh and maritime shipping– “boom” period, no? Because freight rates for container shipping have just about collapsed, and shipping, transportation is a cost, so it’s decline is good for capital. Overproduction? What overproduction. There’s no overproduction, not in the long-wave upturn where the rate of profit is increasing, and when it does fall it doesn’t matter, because Boffy knows what Marx really meant. He really meant a high rate of profit caused crises; which is why Marx spent chapter and verse discussing the law of the tendency of the rate of profit to always rise. No matter what.

Pollyannas? Naw– that doesn’t do them justice. Pangloss-ians, now that’s the ticket. Say hello to my best of all possible worlds, be it high or low.

The issue that higher rates of turnover presents is that there then results an excess of capital not being invested – economizing on capital through higher turnover leaves a portion of the previous investment not utilized in the investment it had previously been engaged (by definition).

This results in a need to invest this “excess” capital elsewhere, or to write it off. Both of these techniques are clearly identified by Marx as some of the “counteracting tendencies” to the law of the falling rate of profit:

“We have thus seen in a general way that the same influences which produce a tendency in the general rate of profit to fall, also call forth counter-effects, which hamper, retard, and partly paralyse this fall. The latter do not do away with the law, but impair its effect.”

So, my reading of this is that the rate of profit over the short term should bounce around a range, but will show a long term declining trend. This appears to be validated by the data.

It would be an error to look at individual industries or countries for proof one way or the other of a profit rate trend. Capitalism is a global system and surplus value is distributed across industries and countries through competition and the equalization of profit rates.

Marx also made it pretty clear that these tendencies can work in opposing directions, what may be good at a micro level (individual company, industry, country) may not be so good for capitalism as a whole:

“The rise in the rate of surplus-value is a factor which determines the mass of surplus-value, and hence also the rate of profit, for it takes place especially under conditions, in which, as we have previously seen, the constant capital is either not increased at all, or not proportionately increased, in relation to the variable capital. This factor does not abolish the general law. But it causes that law to act rather as a tendency, i.e., as a law whose absolute action is checked, retarded, and weakened, by counteracting circumstances. But since the same influences which raise the rate of surplus-value (even a lengthening of the working-time is a result of large-scale industry) tend to decrease the labour-power employed by a certain capital, it follows that they also tend to reduce the rate of profit and to retard this reduction.”

The main problem with the LTRPF is: what’s the use of it? Seeing this discussion I get the impression that the proponents use it as a crutch for the inevitability of the positive ending of capitalism into some kind of socialism. In a way it dismisses them from action on their part or gives them an excuse for the non-effectivity of their actions in “class struggle”. The main objective of Marxian economic theory is producing insights that can be used in the here and now. The LTRPF, if true, gives no other insight then that it’s allowed to sit on your hands, waiting for it to happen. It is an “economist” deviation to give it so much attention. My main objection to Michael Roberts concerns his conclusion that:

All the alternative theories have one thing in common: that, if their particular theory is right, then capitalism can be corrected through financial regulation (Martin Wolf, James Galbraith), higher wages (post-Keynesians), or progressive taxation (Piketty) without removing the capitalist mode of production itself. That’s because these theories argue that there is no fundamental contradiction in capitalist mode of production that causes recurrent and cyclical crises (as Marx claimed); there are only problems with circulation.

The first thing you can say is that these theories can’t be called Marxian. The second thing that the thesis that capitalism can’t be corrected through financial regulation -on which I agree- doesn’t make the LTRPF true. More important: couldn’t it be that (fundamental) contradictions of capital can be overcome by other, political means? By changing its ownership from private to social, making other goals than profit and growth more important and by strengthening the position of labor, giving a kind of controlled monopoly on hiring to trade-union like organizations? I think you can call such a state of affairs still capitalist as labor is still hired and the producing organization has to prove itself under market circumstances. Some contradictions would be resolved, at the same time avoiding the necessity of a central planning.

Marxian theory is about class struggle. In its historic and present form it presupposes the existence of bourgeoisie and proletariat, not only as economic categories but also with a minimum of organization and self-consciousness. Nowadays one can say that in the more advanced economies the proletariat, at least in the sense of an organized party with some consciousness, has ceased to exist and that it’s role and number in the economic sense is diminished. So where is the “revolutionary subject”?
This state of affairs also points to a transformation of capital instead of its downfall or overturn.

I believe Marx answered your question Victor (“what is the use of the LTRPF)– it, the law of the tendency of the rate of profit to decline, identifies the limit to capitalism, brands capitalism as historically transitory and a mode of production which becomes antithetical to the production of social wealth. It expresses, in a single index, the conflict between means and relations of production, which, as we know, is the necessary overture to any age of revolution.

@VictorOnrust, if you take a look at the graphic that relates the rate of profit and time, for the global economics, you will see a deep before and during the WW1. If you consider that both war are basically just one, given both economic elements and the continuity of intense warfare in several parts of the globe, you will see that a world war is a fight to increase profit.
But, don’t you agree that both wars are a catastrophe? There no technological or scientific barrier for both Nazis and Allies to develop nukes and use them. In fact, the war finished with the beginning of a mini nuclear war. There is no barrier that would stop the elimination of most mankind or even the conditions of capitalism to survive.
We are still at the brink of a nuclear war. The nuclear war is getting closer and closer to happen

They don’t mention the growing tensions between China and India over the water supply to several million people in India. China wants to build an dam to feed hydroelectric powerplant in one of the main tributaries of the Ganges, the Brahmaputra. The total max output would be 114GW, 5x larger of that of the three gorges. That an addition of 10% over the actual usage, with the advantage of not polluting the cities.

@sartesian Repeating the previous is not very helpful. Even if this is a limit to capitalism, the question arises if this limit is true for all possible variants of it. What I read is that it would be especially true in the case that (nearly) all production falls under (advanced) and unrestrained capital. But couldn’t there be other processes or actions (struggles) at work transforming capital, in a sense partly redefining the relation between means and relations of production, as I described above? And wouldn’t that be preferable (if not unavoidable) in stead of letting capital run it’s full course? Because one thing is for sure: if relations of production entail the devision of labor (and that to me is really an axiom) inherently there is a power-relation between the ones organizing this division and the ones that execute labor. Even if over time each individual works both sides.

Victor, I found Simon Clarke’s book Marx’s Theory of Crisis good on this, if you haven’t seen it. It covers the competing theories and IIRC concludes that there is little justification for choosing one (i.e. TRPF) over other causes of crisis. Hence he can only conclude that it’s production beyond the limits of the market and I take this to be either a situation close to generalised overproduction (opposed to Say) or a major disproportionality/disruption.

You asked what is the use of the Marx’s laws of the tendency of the rate of profit to fall? I provided Marx’s regard and evaluation of the importance of the law.

It seems to me that the issues in this discussion really do focus on the issues of the limits to capitalism, and the immanent, inherent forces that make its overthrow a necessity.

Marx’s presentation of the significance of the law is A CONCLUSION he draws from his analysis of capitalism as a mode of production, organized of by and for the purpose of reproducing itself as..capitalism. It, Marx’s presentation of the law, is not based on a critique of political economists, but on the material conditions of political economy. The critique of political economists is derived, conditioned, determined by the material functioning of the political economy. In this regard, Marx’s historical materialism is essential to Capital in that history is the medium through which the “logic” such that it is of the condition of labor.

Consequently we have to employ a “drill down” analysis of Marx’s presentation to determine the conformity of the law with and as an expression of the condition of labor.

So first we ask, does Marx indeed assign a DETERMINING, primary, significance to the law of the tendency? I think he clearly does, in volume 3; in the Grundrisse; in his Economic Manuscripts.

Then we ask, does the law follow from Marx’s analysis of the DETERMINING social condition of capitalism? I, again, think he clearly does.

Then we ask what is that determining condition? And that condition is the organization of labor as a commodity, exchanged for its value, for the costs of its reproduction expressed as its necessary labor time, but yielding in this process a surplus value which accrues to the owners of the means of production (collective).

Does Marx derive the law from the need of capital to reproduce itself as capital, as a surplus-value expanding and aggrandizing system? Again I think he does.

The law then becomes a chronic condition of capital, always present but sometimes ameliorated, at other times acute. The transition from “remission” to “acute” exists in the expansion of capital.

There are countervailing forces at work; and indeed these forces are propelled by the operation the law itself– we get asset stripping and liquidation, runaway factories, attacks on labor, transfer of wealth up the social ladder; technical innovation; all leading, theoretically to changing the relation of necessary labor time to surplus labor time, expanding surplus value at a rate sufficient to offset, or check, the fall in the rate of profit.

Now in the “real world”– can we verify the process? Despite the posturing of the “long wavers,” they produce no evidence that refutes the operation of the law during any of the periods when in fact it is possible to show that a process of capital expansion through investment in means of production actually does lower the rate of profit, actually does trigger “countervailing” factors, actually does produce the impacts that Marx said it would. Correlation isn’t causation, but correlation of concrete practice with a theory derived from the principles of a system’s own organization is in fact accepted as confirmation, proof, of the operation of those principles.

The “long wavers” pretend to talk about empirical data, but providing almost nothing regarding such data. We get Graham’s response about US GDP exceeding its pre-recession high 3 years ago. Besides the obvious flaws in using GDP as marker for capitalism what is supposed to distinguish a long wave upturn is that its average rates of growth are improvements over those rates established prior to the “upturn.” Does that improvement exist since 2000 for rates of world GDP expansion? Well, between 1993 and 1999, world GDP (constant prices) expanded by 26 percent; between 2000-2007, the expansion was 34 percent; 2008-2014 (using IMF’s 3.3% estimate for 2014), the expansion is 24 percent. Does that sound like a long wave upturn, when the expansion has slowed from that of the previous “long downturn”?

Our Panglossians are much inclined to point to “overproduction” as the product and producer of “crisis,”– except when such overproduction actually exists, and actually marks the distress in the system– so the collapse in maritime shipping rates has nothing to do with overproduction as shipping according to BJ is in the midst of a “boom” period. The decline in oil prices, directly traceable to overproduction, which overproduction is based on the declining rates of expansion in capitalist manufacturing and trade, is another boom. And the decline in iron-ore prices, steel prices, etc. etc.– that too has nothing to do with overproduction. So overproduction is really the culprit, until, unless, except when such overproduction actually occurs– then devaluation is but one more indicator of the “long wave” upturn.

You ask “But couldn’t there be other processes or actions (struggles) at work transforming capital, in a sense partly redefining the relation between means and relations of production, as I described above?”

What you describe above is “By changing its ownership from private to social, making other goals than profit and growth more important and by strengthening the position of labor, giving a kind of controlled monopoly on hiring to trade-union like organizations?”

And hasn’t that been tried, in various iterations both before and after WW2? Wasn’t that part of the constitution of the Weimar Republic, post WW1? Wasn’t an iteration of that tried in Chile in 1973? Wasn’t it even tried in Britain, prior to Thatcher, actually prior to Callaghan? Or was it prior to Heath? Hasn’t this all been tried somewhere, sometime before?

If Marx is in fact correct, if the the law of the tendency is in fact rooted in the organization of labor as wage-labor, for the aggrandizement of surplus labor time as surplus value, then what possible change in social relations can be achieved that does not complete an expropriation of the expropriators?

As for the Clarke book, sure thing, he concludes that it is production beyond the market that is the culprit. There’s a problem with that, of course, actually more than one: first, capitalism is ALWAYS a system of producing beyond the market, producing beyond consumption. Surplus value is based on the fact, the relation, that the producers are not compensated completely for their labor period and hence cannot consume the complete product. How does capital escape that conundrum? Quite simply by aggrandizing more labor power, by expanding itself, and then as profitability falls, by devaluing itself.

The second problem with Clarke: what is the market? It is the exchange of commodities, of exchangeable value. Capitalist markets require, depend upon for their growth dispossessed labor, labor that is indeed market dependent for its means of subsistence. This is why, in fact, “advanced” capitalist MARKETs are so much deeper, and extensive than those of “undeveloped,” less-developed, “emerging” capitalism.

The history of capitalism in Mexico provides an object lesson in the limitations of markets as being a limitation in the availability of “aggrandize-able” labor. The inability of capitalism in China to expand, to even develop, beyond the cities/foreign enclaves in the 19th/20th centuries is another.

The fact that some 40% of the Chinese population is still tied to the rural economy should tell us how fragile the “Chinese miracle” really is, how dependent it has been on FDI; and the explosion that awaits it.

“As for the Clarke book, sure thing, he concludes that it is production beyond the market that is the culprit. There’s a problem with that, of course, actually more than one: first, capitalism is ALWAYS a system of producing beyond the market, producing beyond consumption. Surplus value is based on the fact, the relation, that the producers are not compensated completely for their labor period and hence cannot consume the complete product.”

This is what underconsumptionists assert. Except that 1) aggregate demand isn’t only based on final consumption and includes demand for capital goods, and 2) it’s not the case that Say’s Law never approximately holds but that it doesn’t always hold. ‘Production beyond the limits of the market’ is one cause of crisis.

If there is no internal contradiction to capitalism, then there is no objective reason to overthrow it.

There may be many subjective reasons (e.g., I am in class that is exploited, I see environmental degradation, I see war, etc.), but if the system can actually produce what it promises (e.g., rising wealth for the world over time), then subjective reasons can be placed in a reform context (e.g., we will spend more on the environment, we will put in a peacekeeping force, we will raise wages, etc.)

But if capitalism has an objective, internal defect that we know will result in crisis after crisis and cannot be fixed except through replacement with something new, then that is a different question altogether.

My reading of most utopian fixes to capitalism is that they logically imply suspending the logic of capital but don’t want to eliminate it.

If there are objective reasons to overthrow capitalism, exploitation, prone to crisis etc etc etc then this still requires a subjective element to actually go and overthrow it.

But that subjective element is itself an objective thing, and it can be analysed why for example, the working class and not the bourgeois are the force to overthrow the system. But that goes beyond simple internal economic contradictions.

The point is that there are no “simple internal economic contradictions” of capitalism that are not at the same time the product of specific class relations; of a specific organization of social labor.

@sartesian The 2nd International was big when the British and French Empire ruld the world or national capitalisms. Now the American Empire rules the world. Todays current 2nd Internationalist is a proponent of all things American. Even in your response you highlight Boffy stating America is in a boom. It has been since 1945 despite the fact that certain towns are in absolute and total meltdown. You see boom for some implies boom even mired in a collapse. The officers of the 3rd Reich were in a boom even when surrounded in a total war. Anyone can say anything and they do. Boffy has been running the long wave boom theory when he first came across it as it justifies his unnerving support for global imperialism.

Well, why bother with aggregate data at all if you think that. Long wave proponents tend to oppose the idea that the “American Empire [still] rules the world”. It’s more commonplace in the political analysis of catastrophists.

Boffy interprets any data to prove …long wave theory. If oil prices go down (due to a fall in aggregate demand as we are in a crisis) that is good for global capitalism. If oil prices skyrocket that is also good for global capitalism. There never was a ‘catastrophist’ theory in Marx as pointed out by Sartesian. National capitalisms gave way via two world wars to the rise of one and only global imperialism. To assert that we are in the 1950’s ie the ascendancy of the American Empire and not its overextension and destruction leading to eventual collapse, makes you a delusional follower of the American Empire, which is what Boffy is. That is why data has no meaning. It explains both ends of every stick. Its the destruction of thought…

@sartesian says:“It seems to me that the issues in this discussion really do focus on the issues of the limits to capitalism, and the immanent, inherent forces that make its overthrow a necessity.”

If something is going to come to an end because of immanent, inherent forces it doesn’t have to and maybe even can’t be overthrown (or changed). So why bother? That’s exactly my point. The only way in which it really matters if LTRPF is true or not is that it allows one, or maybe even obliges one to just wait till it happens. It does not give you one inch of a motive for action in the here and now. On the contrary. So i am just arguing to all of you to turn your attention elsewhere and kill this debate.

That’s just a bit disingenuous of you Victor, and I suspect a convenient way to pull out of the discussion without providing a shred of empirical evidence, or dealing with the empirical evidence provided by myself.

After all, way back in this comment scroll, I pointed out that limitations do no mean capital is going to come to an end; that I was not a “catastrophist,” that capital can and will reproduce itself despite a falling rate of profit in that devaluation, whether “passive” or violent is triggered by the fall.

The immanent tendency that determines the historical necessity for the overthrow of capitalism, and overthrow is what is required, is the fact that capitalism becomes an obstacle to the production of social wealth.

Your argument that the LTFROP “allows one or maybe even obliges one to just wait” is nonsense. Recognizing the internal contradictions of capital does not allow or oblige anything, as those contradictions are the result of a specific organization of labor; that is to say, real human beings under real conditions. Consequently the necessity is “recognized” in the actions of the human beings organizing to effect that overthrow.

The issue was, and is, was Michael correct in his argument that the LTFROP is at the root of the current condition of capitalism?

Causes and Consequences of the Global Economic Crisis:
A Marxist-Socialist Analysis
Murray E.G. Smith
Professor of Sociology
Brock Universitymsmith@brocku.ca
Copyright 2009
Does our recent history confirm Marx’s claim that “the real barrier to
capitalist production is capital itself”?
Marx’s Law of the Falling Tendency of the Rate of Profit
For many years, the favored explanation for the profitability crisis among radical political
economists was the “wage-push/profit-squeeze” or “rising strength of labour” account.
According to this approach, the profit share of national income declined because real wages rose
faster than the rate of productivity growth – a view shared by most mainstream economists as
well. The element of truth in this explanation was that over a considerable period of time an
increasing share of the aggregate wage bill went to wage and salary earners who were not
directly involved in the production of commodities, and “total wages and salaries” as a
percentage of national income rose relative to the profit share. As workers were displaced from
production due to technological innovations in manufacturing, mining and construction, they
found new jobs in the commercial or financial sectors as well as in non-profit state or para-state
agencies (the civil service, education, etc.). While the labour performed by these workers was
“socially necessary” from the standpoint of capital, it wasn’t directly productive of commodities
embodying surplus value – and it therefore constituted “unproductive labour” in Marx’s terms.
This growth of “socially necessary unproductive labour” was a supplementary cause of the postwar
fall in the rate of profit in the advanced capitalist world, but it was by no means the only or
even the primary cause.
There is strong evidence, particularly for the U.S. economy, that the growth of real wages for
productive workers did not outstrip productivity growth in the post-war period leading up to the
profitability crisis of the 1970s. Convincing empirical studies by the Marxist economist Anwar
Shaikh have established that the fall in the average rate of profit in the U.S. economy was
significantly correlated with an increase in what Marx called the “organic composition of
capital” – the ratio of “dead” to living labour in production.i Independent studies by Fred
Moseley complement Shaikh’s findings, while also emphasizing the role of a rising ratio of
unproductive to productive labour in the overall fall in the average rate of profit.ii
Over a decade ago, I tested Marx’s theory of the falling rate of profit in regard to the evolution of
the Canadian economy between 1947 and 1991. This analysis, co-authored by K. W. Taylor, was
originally published in the journal Studies in Political Economy (Spring 1996, No. 49) and later
summarized in my article “The Necessity of Value Theory” published in Historical Materialism
(1999, No. 4). The first major finding of the study was that between 1947 and 1975 the average
rate of profit on capital investment exhibited a long-term declining trend – a well-established and
uncontroversial fact (see Chart 1).